How Prediction Markets Work

A prediction market trades a defined event. Its price is an implied probability; its payout depends on the contract’s exact rules.

The contract comes before the probability

A common binary contract pays $1 if its defined outcome is confirmed and $0 otherwise. A price of $0.30 is therefore read as roughly 30% implied odds. This is a market price, not proof that the true event probability is 30%.

The question, source, deadline and settlement procedure define what you own. Two similar headlines can describe different contracts.

Worked example: price, payout and loss

Suppose you buy 100 Yes contracts at $0.30 each. The cost is $30 before fees. A Yes settlement pays $100, producing $70 gross profit; a No settlement pays $0, losing the $30 stake. The maximum loss is not 70% of the payout: it is the amount paid plus applicable costs.

If you sell earlier at $0.40, proceeds are $40 before costs and the gross gain is $10. That exit requires available buyers at your size; the headline price alone cannot guarantee a fill.

A displayed number is not necessarily an execution price

Order books distinguish bid, ask, midpoint and last trade. Check which one a venue displays, how recently it traded, and depth at your order size. A wide spread indicates execution uncertainty; it is not a statistical confidence interval for the event.

Use the signal with its limits

Trading can incorporate news quickly, but prices also reflect participant access, capital constraints and thin liquidity. Resolution can include verification or disputes. Read the underlying rules instead of assuming that the final headline settles a contract immediately.

Aiovel provides a dated public sample on the Economy odds board. Check the snapshot’s generation time and original contract rules before treating it as current.