What Are Prediction Markets? Kalshi, Polymarket & Event Contracts Guide

Prediction markets have gone from a niche concept debated in economics papers to a mainstream financial product processing more than $20 billion a month. Kalshi raised $1 billion at a $22 billion valuation in March 2026. The Intercontinental Exchange, owner of the New York Stock Exchange, put $2 billion into Polymarket. DraftKings, FanDuel, Robinhood and Coinbase have all entered the space. The 2024 US election was the moment most people heard about prediction markets for the first time, but the growth since then has been driven by sports, economics and technology events, not politics.

This guide explains what prediction markets are, how they work mechanically, and what the two dominant platforms actually do differently.

A Prediction Market Turns Opinions Into Tradeable Contracts

A prediction market is a platform where participants buy and sell contracts whose value depends on the outcome of a real-world event. If the event you predicted happens, your contract pays out. If it does not, you lose what you staked.

The simplest version is a binary contract: yes or no. Will the Federal Reserve cut rates in June? Will Team A win the championship? Each contract trades between zero and one dollar, or zero and one pound, with the price at any moment reflecting the market's collective view of the probability. A contract trading at $0.65 implies the market thinks there is a 65% chance the event occurs. If it does, the contract settles at $1.00. If it does not, it settles at zero.

This mechanism makes prediction markets distinct from traditional polling or forecasting. Participants have real money on the line, which creates an incentive to be right rather than just confident. Markets aggregate information from thousands of traders with different knowledge and access, and the resulting price tends to update faster and more accurately than expert consensus when new information arrives.

How a Trade Actually Works From Entry to Settlement

When you open a position on a prediction market, you are buying a contract from another participant who takes the opposite view. If you think the Fed will cut rates in June and buy the Yes contract at $0.60, you are paying $0.60 for a contract that will be worth $1.00 if you are right, generating a $0.40 profit, or worth zero if you are wrong. The person on the other side of your trade paid $0.40 for the No contract and profits if the cut does not happen.

Prices move as new information arrives. If the Fed chair signals a pause in a speech, Yes contracts will fall toward zero and No contracts will rise toward $1.00. Traders who bought Yes early and see the price drop can sell before settlement and cut their losses. Traders who bought No can take their profit without waiting for the event to resolve. This secondary market is what makes prediction markets function more like financial markets than simple betting pools.

Settlement happens when the event resolves. Most platforms use a combination of official sources and designated resolution agents to determine the outcome. Kalshi uses its own legal settlement infrastructure as a CFTC-regulated exchange. Polymarket uses a decentralised oracle system called UMA Protocol, where token holders vote to confirm outcomes in disputed cases.

Kalshi Built Its Moat Around Regulation

Kalshi is a CFTC-regulated exchange that classifies its products as event contracts, a legal category it spent years fighting to establish. Its 2025 legal victory over the CFTC, which had attempted to block it from listing political event contracts, was the moment that opened the US market to a much wider range of events. Kalshi now lists contracts on sports, elections, economics, weather, technology and a growing range of corporate events.

The regulated structure means US residents can trade directly in dollars without needing a crypto wallet or a VPN. Kalshi charges up to $0.02 per contract and has no maker fees. It processed an all-time monthly record of $14.81 billion in volume in April 2026, and its valuation rose from $2 billion in June 2025 to $22 billion by March 2026, a tenfold increase in nine months. Exclusive data partnerships with CNN and CNBC have moved its probability data into mainstream financial media. Robinhood's prediction markets product, built on Kalshi's infrastructure, has been described as the fastest-scaling product in Robinhood's history.

Markets covered: Sports, US and global politics, Federal Reserve decisions, inflation, weather, technology milestones, corporate events

Polymarket Built Its Moat Around Global Liquidity

Polymarket operates on the Polygon blockchain and allows anyone globally to trade using USDC, a dollar-pegged stablecoin, without identity verification requirements. That permissionless structure made it the dominant platform during the 2024 US election cycle, when it attracted international capital and traders who could not access US-regulated alternatives. Monthly active wallets peaked at nearly 478,000 in October 2025, and the platform recorded $10.57 billion in trading volume in March 2026, its first month crossing the $10 billion mark.

Polymarket's model has also drawn scrutiny. A December 2025 security breach exposed some wallet infrastructure. An anonymous trader's improbably accurate run on Google's Year in Search markets prompted accusations of insider trading. And a methodological issue identified by Paradigm in late 2025 showed that its multi-outcome market structure causes certain on-chain trackers to double-count volume, meaning widely cited headline figures may overstate actual economic activity. The platform is seeking $400 million in new funding at a $15 billion valuation, with Intercontinental Exchange already holding a $2 billion stake.

Markets covered: Global politics, crypto prices, sports, science, technology, culture and entertainment

Kalshi vs Polymarket: How the Two Giants Actually Differ

Prediction Markets Tend to Beat Polls and Most Expert Forecasts

The strongest argument for prediction markets as a product is their forecasting record. Academic research and empirical analysis consistently show that market-derived probabilities outperform traditional polling and expert panels on a range of event types, particularly elections, economic indicators and sporting outcomes. Average Brier scores, a standard measure of probability forecast accuracy where lower is better, sit near 0.09 across major prediction market platforms, which compares favourably with institutional forecasting benchmarks.

The mechanism behind the accuracy is straightforward. Poll respondents and pundits have no financial stake in being right. Prediction market participants do. Information from traders with specialised knowledge gets reflected in prices as soon as it influences anyone's trading decision. Markets update continuously; polls and forecasts do not. Polymarket CEO Shayne Coplan has described prediction markets as "the most accurate thing we have as mankind" when it comes to forecasting event outcomes, a claim that is hyperbolic but supported by the data in most major event categories.

The limits of this accuracy are worth noting. Prediction markets can be manipulated by large coordinated positions, as several Polymarket controversies illustrated. They also struggle with events that have ambiguous resolution criteria, where the question of what counts as a specific outcome becomes contested after the fact.

The Risks Are Real and Not Always Obvious

The most visible risk is capital loss. These are binary instruments for the most part, and a contract worth $0.90 can go to zero if the resolution does not go your way. Unlike traditional investments, there is no dividend or interest to cushion a wrong call.

Resolution risk is more specific to this asset class. The terms of a contract determine what counts as a win, and the wording matters. Cases where an event technically satisfies some but not all of the stated resolution criteria have led to disputed outcomes on both major platforms, with traders losing positions they believed they had won on a reasonable interpretation of the contract terms.

Regulatory risk is ongoing. The decentralised finance structures underpinning Polymarket operate in a legal grey area in most jurisdictions outside the US, and enforcement action has historically come without warning in this sector. Kalshi's regulated model addresses this for US users but limits the range of markets it can legally offer.

From a Niche Product to a $1 Trillion Market by 2030

The growth trajectory is striking by almost any measure. Total sector volume grew from under $100 million a month in early 2024 to more than $20 billion a month by early 2026, a roughly 130-fold increase in two years. Citizens Financial Group projects prediction market revenues will reach $10 billion annually by 2030, up from approximately $2 billion today. CNBC cited industry forecasts suggesting total market volume could approach $1 trillion by the same year.

The next growth drivers are institutional rather than retail. BitGo and Susquehanna Crypto launched dedicated institutional over-the-counter access to prediction markets in March 2026, allowing hedge funds and family offices to trade using existing crypto collateral. Kalshi and Polymarket are both reportedly planning to launch perpetual futures, which would blur the line between prediction markets and conventional derivatives and attract a more sophisticated trading audience.

The 2026 FIFA World Cup, hosted in North America, is expected to drive the next major surge in retail volume. Beyond that, the structural bet most institutional observers are making is that economics and macro markets, contracts on Federal Reserve decisions, inflation prints and employment data, will eventually overtake sports and politics as the dominant category as institutional capital gravitates toward events it already has analytical infrastructure to trade.