How prediction markets work

A prediction market looks like a betting app but works like a small exchange. This guide covers the mechanics, from what a contract is to what it costs to get in and out, with the numbers worked through.

The contract: Yes, No and a $1 payout

Every standard event contract asks a single yes-or-no question and settles at either $1 or $0. A Yes contract pays $1 if the event happens; a No contract pays $1 if it does not. Polymarket US describes its products as binary $1/$0 contracts, and Robinhood, Kalshi and the other US venues use the same structure.

Because one side must win, a Yes and a No on the same question are together worth exactly $1 at settlement. If Yes trades around 38¢, No will trade around 62¢.

How to read a prediction market price

Read the price as a probability. A Yes at 37¢ means the market, in aggregate, puts the outcome at roughly 37%. Webull’s help center puts it simply: prices can be interpreted as probabilities.

Two things make that reading approximate:

• Fees. You pay more than the quoted price, so your break-even probability is higher than the price.
• The spread. There is a price to buy and a lower price to sell. The “true” market estimate sits somewhere in between.

Worked example: buying Yes at 37¢

You buy 100 Yes contracts at 37¢ as a taker (an order that fills immediately).

The Kalshi coefficient (0.07) is widely reported and identical to the official formula Crypto.com publishes for its sports contracts; Kalshi’s own fee-schedule PDF could not be accessed when we checked. The Polymarket US figure uses its official schedule effective October 1, 2026.

So a 37¢ price needs a bit better than a 38.6% chance to pay off over time, not 37%. For a platform-level look at these two exchanges, see Kalshi vs Polymarket.

The order book: bids, asks and the spread

Prices are not set by the platform. They come from an order book, the list of resting orders from other users. Polymarket US runs a central limit order book; Webull shows a depth-of-market view of Kalshi’s books.

• The bid is the highest price someone will pay.
• The ask is the lowest price someone will sell at.
• The spread is the gap between them.

Suppose Yes shows a bid of 36¢ and an ask of 38¢. If you bought 100 at 38¢ and changed your mind a second later, you could sell only at 36¢, losing $2.00 before any fees. That spread is a real cost, even though it never appears on a fee schedule.

Liquidity: why the size of the book matters

Liquidity is how much you can trade near the current price. In a deep market, a 100-contract order fills at one price. In a thin one, it eats through several levels.

Say the book offers 40 contracts at 38¢ and the next 60 at 40¢. A 100-contract market order costs 40 × $0.38 + 60 × $0.40 = $39.20, an average of 39.2¢, before fees. The quoted price was 38¢, but your effective price was over a cent higher. Large orders in quiet markets also move the displayed price, which is why thin markets are a weaker probability signal.

Market orders vs limit orders

• A market order takes the best price available right now. It is fast but exposes you to the spread and to slippage through the book.
• A limit order sets the maximum you will pay (or the minimum you will accept when selling). It may not fill, but you control the price.

Webull’s event-contract help describes both order types. Some broker apps restrict what you can do: Webull allows only “buy to open” and “sell to close,” though you can buy No directly.

Maker vs taker

Your order type also decides how you are charged.

• A taker fills against an order already on the book, usually via a market order or a limit order priced to cross the spread.
• A maker posts a limit order that waits and adds liquidity.

Fees differ sharply by role. Using the book above, instead of paying the 38¢ ask, you post a bid at 36¢ and someone sells into it:

Kalshi’s help center says maker fees apply only on some markets and only when an order executes, not when it is cancelled. The trade-off: the maker gets a better price and a lower fee, at the risk of never being filled.

Selling before settlement

You can exit at any time by selling into the book. Say your 37¢ Yes position climbs to 55¢ and you sell all 100 as a taker on Kalshi. If the same taker formula applies to the closing trade, the fee is 0.07 × 100 × 0.55 × 0.45 = $1.7325, charged as $1.74.

• Sale proceeds: $55.00 − $1.74 = $53.26
• Original outlay: $38.64
• Net profit: $14.62

It works the other way too. If the price drops to 25¢ and you sell, the fee is $1.32 (0.07 × 100 × 0.25 × 0.75 = $1.3125, rounded up), proceeds are $23.68, and your loss is $14.96 rather than the full $38.64.

Broker fees can stack on the way out. Webull charges $0.01 firm and $0.01 exchange per contract on both opening and closing trades. FanDuel Predicts charges 2¢ per dollar of potential payout, and the same fee applies on early cash-out, so a 100-contract position costs $2 in and another $2 out. Our fee guide compares these models in detail.

How the contract settles

When the event is decided, each winning contract pays $1 and each losing contract pays $0. The outcome is set from the source named in that market’s rules; Coinbase’s help center, for example, says Kalshi determines the result from the source of truth specified in each contract. Read the rules before you trade, because the precise wording decides edge cases. Our guide to how prediction markets settle covers disputes.

Can you lose more than you bet?

No, not on a standard Yes/No contract. You pay the full price when you buy, and the worst outcome is that the contract settles at $0. Your maximum loss is the purchase price plus fees. Crypto.com, for example, describes its contracts as fully collateralized from the customer’s USD cash account.

That guarantee does not extend to every product an exchange sells. Kalshi now lists perpetual futures with their own fee page, and it has asked the CFTC to approve margin trading, according to secondary reports. Leveraged products can lose more than the initial outlay, so check which product you are buying.

A pre-trade checklist

• Convert the price to a break-even probability after fees, not before.
• Check the bid, the ask and how many contracts sit at each level.
• Decide whether you need to fill now (taker) or can wait for your price (maker).
• Know what it costs to get out early on your platform, including broker fees on the closing trade.
• Read the contract rules and settlement source.