Prediction Markets Explained: How Kalshi, Polymarket & PredictIt Work

Prediction markets are exchanges where you buy and sell contracts on the outcome of real-world events. Each contract trades between $0.01 and $0.99, with the price reflecting the crowd's estimate of probability. If the event happens, the contract settles at $1.00. If it doesn't, it settles at $0. Platforms like Kalshi, Polymarket, and PredictIt let anyone trade on elections, economic data, weather, sports, and more.

For bettors, prediction markets are worth paying attention to. The contract pricing model is different from traditional odds, but the underlying math is the same. Once you understand how to convert between the two, you can spot value across both worlds.

How prediction market contracts work

Every prediction market contract is a binary question: will this event happen, or won't it?

Example: "Will the Federal Reserve cut interest rates in June 2026?"

• Yes contracts pay $1.00 if the event occurs
• No contracts pay $1.00 if the event does not occur

If Yes contracts are trading at $0.65, the market is pricing in a 65% probability of a rate cut. You can buy Yes at $0.65, risking $0.65 to profit $0.35 if correct. Or you can buy No at $0.35, risking $0.35 to profit $0.65 if incorrect.

The prices of Yes and No contracts always sum to approximately $1.00 (before fees). This is the same principle as implied probability in sports betting, where probabilities across all outcomes should sum to 100%.

Order books vs. fixed pricing

Prediction markets use order books, not fixed odds. You place limit orders at your desired price, and the trade executes when a counterparty matches you. This means:

• You set your own price. Instead of accepting the sportsbook's line, you can bid at a price you think offers value.
• Liquidity matters. Thin markets may not fill your order, or may only fill part of it.
• Spreads exist. The gap between the best bid and best ask is your cost of immediacy. Buying at the ask or selling at the bid means paying the spread.

Converting contract prices to odds

Prediction market prices map directly to implied probability and traditional betting odds. This is critical for comparing value across platforms.

Price to implied probability

A contract priced at $0.65 implies a 65% probability:

Implied Probability = Contract Price × 100

Price to decimal odds

Decimal Odds = 1 / Contract Price

Example: A contract at $0.40

Decimal Odds = 1 / 0.40 = 2.50

This means a $100 bet returns $250 total ($150 profit + $100 stake) if the contract settles at $1.00.

Price to American odds

For contracts priced below $0.50 (underdog):

American Odds = (100 / Contract Price) - 100, expressed as positive

Example: Contract at $0.25

American Odds = (100 / 0.25) - 100 = +300

For contracts priced above $0.50 (favorite):

American Odds = -(Contract Price / (1 - Contract Price)) × 100

Example: Contract at $0.75

American Odds = -(0.75 / 0.25) × 100 = -300

Quick reference table

Use our prediction market calculator for instant conversions, or the odds converter if you need to switch between American, decimal, and fractional formats.

Platform comparison: Kalshi vs. Polymarket vs. PredictIt

The three major prediction market platforms differ significantly in regulation, fee structure, available markets, and accessibility.

Kalshi

Kalshi has been a CFTC-regulated exchange since November 2020 and offers the broadest range of event categories, including economics, weather and sports. Being regulated means funds sit in segregated accounts with clearing guarantees. It is no longer the only regulated venue: Polymarket US, ProphetX, Novig and Crypto.com's OG platform are all CFTC-approved as of 2026.

On cost, Kalshi is the most expensive of the major venues rather than the cheapest. Takers pay a coefficient of 0.07, which works out to 1.75¢ per contract on a 50¢ market, and makers pay a quarter of that. It buys you the deepest books in the sector: $37.7B of volume in July 2026, roughly 75% of the three-platform total.

Polymarket

Polymarket now runs two venues. Polymarket US is CFTC-regulated, takes dollars, requires full identity verification and has been open to US traders since December 2, 2025. Polymarket International is the original wallet-native platform on Polygon, settling in USDC, and is not available to US persons.

Fees are lower than Kalshi's on both. Polymarket US charges takers a 0.06 coefficient and pays makers a rebate rather than charging them, which is the single biggest cost difference between the two platforms. The international site charges nothing at all on geopolitical and world-event markets.

The drawbacks are depth and resolution. Polymarket US did $5.0B in July against Kalshi's $37.7B, and settlement on the international platform relies on the UMA oracle, which has occasionally produced disputed resolutions.

PredictIt

PredictIt survived the CFTC's 2022 attempt to shut it down. Staff withdrew its original no-action letter that August and ordered a wind-down; a federal court sided with PredictIt, and the CFTC issued amended relief in July 2025. It is still operating, politics only, under no-action relief rather than a full exchange registration.

Its fees remain the most punitive of the three: 5% on every profitable contract plus 5% on withdrawals. Per-contract position limits still apply and were revised under the amended relief, so check the current cap before sizing anything. The 5,000-trader-per-contract participation limit is gone.

Types of prediction markets

Political markets

Elections and policy decisions are the highest-volume prediction market categories. Presidential races, congressional elections, Supreme Court rulings, and regulatory decisions all attract significant liquidity. These markets often become more accurate than polls as the election approaches, because traders have real money at stake.

Economic markets

Will inflation exceed 3%? Will the Fed raise rates? Will GDP growth top 2.5%? Economic event contracts let you trade on macroeconomic indicators, often resolving to official government data releases. These markets attract institutional-level interest.

Weather and climate

Kalshi popularized weather contracts, offering markets on temperature records, hurricane landfalls, and snowfall totals. These are unique because they have no traditional betting equivalent and attract participants with genuine forecasting expertise.

Sports markets

Kalshi has expanded into sports event contracts, offering a regulated alternative to traditional sportsbooks. The contract format is different (binary contracts rather than traditional odds), but the underlying exposure is similar. Sports contracts on prediction markets sometimes price differently than sportsbook odds for the same event, creating opportunities for cross-market comparison.

Culture and entertainment

Oscar winners, TV ratings, box office numbers, and social media milestones. These novelty markets tend to have thinner liquidity but can offer value if you have domain expertise.

Strategies for prediction markets

Cross-platform arbitrage

When the same event trades on multiple platforms at different prices, you can lock in a risk-free profit. If Kalshi prices "Will X happen?" at $0.60 Yes, and Polymarket prices the same event at $0.35 No (implying $0.65 Yes), you could buy Yes on Kalshi at $0.60 and No on Polymarket at $0.35, paying $0.95 total to guarantee a $1.00 payout.

That's a 5.26% return regardless of outcome.

This works the same way as arbitrage in sports betting, and you can size each leg with our arbitrage calculator. The challenge is execution speed, as prices converge quickly once the gap is spotted.

Prediction markets vs. sportsbook arbitrage

For sports events that trade on both prediction markets and traditional sportsbooks, you can sometimes find pricing discrepancies between the two. A prediction market might price a team's win probability at 45% ($0.45 contracts) while a sportsbook offers +130 (43.5% implied) on the same outcome.

Convert both to the same format using the prediction market calculator, and the comparison becomes clear.

Buying underpriced contracts early

Prediction markets are most inefficient when a market first opens and liquidity is thin. If you have expertise in a specific domain (meteorology, economics, a particular sport), early markets can offer substantial edge before the crowd corrects the price.

Selling before settlement

You don't have to hold contracts to expiry. If you buy Yes at $0.40 and the price rises to $0.70 before the event resolves, you can sell for a $0.30 profit per contract without waiting for settlement. This is similar to trading positions rather than waiting for the final result.

Portfolio diversification

Prediction markets let you take positions on events that are uncorrelated with each other and with traditional financial markets. A portfolio of 20-30 well-researched positions across different categories reduces the impact of any single loss.

Risks and considerations

Liquidity risk

Unlike sportsbooks that always offer a price, prediction market orders may not fill. Thin markets mean wide spreads, partial fills, and difficulty exiting positions. Always check the order book depth before committing to a trade.

Platform and settlement risk

Unregulated platforms carry counterparty risk. If a platform shuts down or disputes a settlement, recovering funds can be difficult. Polymarket's UMA oracle has resolved most disputes cleanly, but the system relies on decentralized governance that may not always align with trader expectations.

Regulated platforms like Kalshi mitigate this through CFTC oversight and segregated customer funds, but regulation doesn't eliminate all risk.

Regulatory uncertainty

The regulatory status of prediction markets in the US continues to evolve. The CFTC has approved some event contracts while blocking others (notably rejecting certain political event contracts before later reversing course). Rules may change, affecting which markets are available and which platforms can operate.

Tax treatment

In the US, prediction market profits are taxable, but whether they count as ordinary income or capital gains is still unsettled and can depend on the contract type. That differs from sports betting, where winnings are reported as gambling income under the wagering rules. See our Kalshi and Polymarket taxes guide for the details, and consult a tax professional for your specific situation.

Position sizing

The same principles of bankroll management apply. Don't concentrate too much capital in a single contract, especially on events with binary outcomes. A diversified approach with proper position sizing protects against the inevitable losses.

Prediction markets vs. sports betting

For bettors already familiar with sports betting, prediction markets offer a few distinct advantages:

• You set the price. Limit orders mean you decide what odds to accept, rather than taking what the sportsbook offers.
• No account limits. Prediction markets don't limit winning traders the way sportsbooks limit sharp bettors.
• Broader event coverage. Politics, economics, and weather markets have no sportsbook equivalent.
• Lower fees. Kalshi and Polymarket charge a per-contract fee that peaks at the midpoint and falls toward zero at the extremes, which generally costs less than the 4-10% vig built into sportsbook odds. It is not zero, and anything telling you it is was written before the current schedules.

The downsides: lower liquidity on most markets, fewer sports markets than traditional sportsbooks, and the learning curve of order-book trading versus clicking a bet slip.

Getting started

1. Choose a platform. For US-based traders, Kalshi is the most accessible regulated option. For international users, Polymarket offers the deepest liquidity.
2. Fund your account. Start small. $100-500 is enough to learn the mechanics without significant risk.
3. Learn to read order books. Understand bid/ask spreads, market depth, and how limit orders work.
4. Convert prices to formats you understand. Use our prediction market calculator to translate contract prices into decimal, American, or fractional odds.
5. Start with markets you know. If you follow sports, start with sports contracts. If you follow politics, start there. Domain knowledge is your edge.
6. Track your positions. Record your entry price, thesis, and result for every trade. Reviewing your history reveals patterns in where you find (or don't find) value.