How do prediction markets work?

Bet Types

6 diagrams•11 min read•Updated Oct 15, 2026

Short answer

A contract pays $1 if you're right and $0 if you're wrong.The price in cents is the market's chance: 62¢ means about 62%.You trade with other people, and you can sell before the game ends.Fees come on top of the price, and they're biggest on 50/50 contracts.

A prediction market lets you buy a contract that pays $1 if something happens and $0 if it doesn't. The price is the market's guess at the chance it happens, and you can buy or sell that contract with other people right up until the game ends.

That sounds simple. But here's the thing. If you read a 62¢ contract like a -150 sportsbook bet, you'll misread the price, pay fees you didn't plan for and miss the one feature that makes these apps different. So let's walk through it from the first click to the payout.

A price is a probabilityTwo sides of the same $1 contract.

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What you're actually buying

Every market is a yes or no question. Will the Bills beat the Dolphins? Will Josh Allen throw for 250 yards? You pick a side by buying Yes or No.

Each contract is worth exactly $1 at the end. If you're right, you get $1 per contract. If you're wrong, you get nothing. There's no in between.

▸Yes plus No always equals $1. If Yes costs 62¢, No costs 38¢.

▸You're not betting against the app. Someone else is on the other side of your trade.

▸The app makes its money from a fee on each trade, not from you losing.

How to read the price

The price in cents is the chance the market gives that outcome. 62¢ means about 62%. 20¢ means about 20%. If you know sportsbook odds, this table connects the two.

Contract price	Implied chance	Same as odds of	Profit on $100, before fees
20¢	20%	+400	$400.00
40¢	40%	+150	$150.00
50¢	50%	+100	$100.00
60¢	60%	-150	$66.67
62¢	62%	-163	$61.29
80¢	80%	-400	$25.00

The catch

A sportsbook's -163 already has the book's cut baked in. A 62¢ contract doesn't. The fee comes on top. So always compare the two after the fee, not before.

A full trade, start to finish

Say the Bills are playing the Dolphins and Yes on "Bills win" is selling for 62¢. You like the Bills. Here's exactly what happens.

1You buy 50 Yes contracts at 62¢. That costs $31.00.

2You pay a trading fee on top. On Kalshi it's $0.83 for this order, so you're in for $31.83 total.

3You can now hold until the game ends or sell before then.

4If the Bills win, each contract pays $1. You get $50.00 back.

5If the Bills lose, the contracts pay $0. You lose the $31.83.

Fee = 0.07 × 50 contracts × $0.62 × $0.38 = $0.8246, rounded up to $0.83

Kalshi's taker fee formula, from its fee schedule dated July 7, 2026

Both endings of the same tradeWin and you make $18.17. Lose and you're out $31.83.

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The order book: why your price matters

The 62¢ you see on the screen isn't one fixed price. It's the cheapest offer from people who want to sell. Below it are the people who want to buy, and they're bidding a little less. That list is called the order book.

Reading the order bookSellers on top, buyers below and the gap in between.

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The gap between the best bid and the best ask is the spread. In a busy market it's 1¢ or 2¢. In a quiet one it can be 10¢ or more, and that gap comes straight out of your pocket.

▸Market order: you take the best price on the book right now. Fast, and you pay the trading fee.

▸Limit order: you name your price and wait for someone to take it. On Kalshi, most orders that rest on the book like this pay no fee at all.

▸Buying No at 40¢ is the same bet as selling Yes at 60¢. Both sides live on the same book.

Selling before the game ends

This is the big difference from a sportsbook. Your contracts trade all game long. If the Bills go up 17-3 at halftime, your 62¢ Yes contracts might be worth 80¢. You can sell them right there to anyone bidding 80¢.

Sell at halftime or hold to the endSelling at 80¢ locks in $7.61. Holding pays $18.17 or loses $31.83.

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Sell 50 at $0.80 = $40.00. Fee = 0.07 × 50 × $0.80 × $0.20 = $0.56. Profit = $40.00 - $0.56 - $31.83 = $7.61

One warning. As a game gets close to decided, buyers get scarce. The spread widens and it gets harder to sell a losing position for anything. Busy markets are easier to get out of than quiet ones.

My rule

Selling early is a tool, not a panic button. Decide your plan before you buy: hold to the end, or sell at a price you picked ahead of time. Changing your mind mid-game because you're nervous is how you end up selling every winner early and riding every loser to zero.

Fees: the part most beginners skip

Each app sets its own fees, so check before you trade. On Kalshi, the fee on an order you take right away is 0.07 times the number of contracts times the price times one minus the price. That last part matters. It means the fee is biggest on a 50/50 contract and shrinks as the price gets close to 0¢ or $1.

Kalshi's fee on 100 contracts at each priceThe fee peaks at $1.75 on a 50¢ contract and drops to $0.63 at 10¢ or 90¢.

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On 100 contracts at 50¢, you spend $50 and pay $1.75 in fees. That's 3.5% of what you put in. Small on one trade. Big if you trade the same coin flips every night.

Prediction market vs sportsbook

Same game, two ways to bet itA sportsbook sets the odds and takes the other side. A prediction market matches you with another person.

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Neither one is always better. Sometimes the prediction market price beats the sportsbook after fees, sometimes it doesn't. The move is the same as with any bet: check both and take the better number.

How to get started

1Pick an app. Kalshi, Polymarket, Novig, FanDuel Predicts and ProphetX all offer sports contracts. What you can trade depends on your state, and each app shows you what's available where you are.

2Sign up and verify your ID. Kalshi takes users 18 and older. Other apps set their own minimum age, so check before you sign up.

3Deposit a small amount to start. Treat it like any bankroll: money you can afford to lose.

4Open a market and look at the order book. Check the spread before you do anything.

5Place a small limit order at a price you're happy with, then wait for it to fill.

6Write down your exit plan: hold to the end, or sell at a price you chose before the game.

7Track every trade, wins and losses, the same way you'd track your sportsbook bets.

Five mistakes that cost beginners money

▸Paying the ask in a quiet market. A 10¢ spread is a 10¢ loss the second you buy.

▸Forgetting the fee. On a 50/50 contract it's the most you'll pay anywhere on the board.

▸Thinking cheap contracts are good value. A 5¢ contract that's priced right wins about 1 time in 20.

▸Panic selling. Every early exit without a plan costs you the spread and a second fee.

▸Betting bigger because it feels like trading. It's still a bet on a game. Same bankroll rules apply.

Is it legal, and is it gambling?

Kalshi is regulated by the CFTC, the federal agency that oversees futures markets, which is why these apps call your bet a contract or a trade. Several states disagree and are fighting sports contracts in court, so the list of what you can trade in your state can change.

Here's my honest take. Whatever the law calls it, you're putting money on the outcome of a game. Size it like a bet, track it like a bet and never chase a loss because the app looks like a stock app.

So that's the whole picture. A contract pays $1 or $0, the price is the market's chance, you trade with other people and you can sell early. Next, see how the fees stack up against a sportsbook's built-in cut on real numbers.