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 is the only fully CFTC-regulated prediction market exchange in the US. It offers the broadest range of event categories, including economics, weather, and recently sports. Being regulated means your funds are held in segregated accounts with clearing guarantees. Kalshi currently charges no trading fees, making it the most cost-effective platform for active traders.

Polymarket

Polymarket runs on the Polygon blockchain and uses USDC (a stablecoin pegged to the US dollar). It gained massive traction during the 2024 US election cycle. Polymarket has the deepest liquidity on political markets and charges no trading fees. The main drawbacks: it's not available to US users, and settlement relies on the UMA oracle system, which has occasionally produced disputed resolutions.

PredictIt

PredictIt operated under a CFTC no-action letter that has since expired. The platform is winding down, with limited new markets. Its fee structure was the most punitive: 5% on every profitable contract plus 5% on withdrawals. The $850 position limit also capped potential returns. For new traders, PredictIt is no longer a viable option.

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. 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 generally treated as short-term capital gains, taxed at your ordinary income rate. This differs from sports betting, where winnings are reported as gambling income. Consult a tax professional for your specific situation, as the classification of event contract income is still being clarified by the IRS.

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 or zero fees. Kalshi and Polymarket currently charge no trading fees, compared to the 4-10% vig built into sportsbook odds.

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.