What Are Prediction Market Contracts?

A prediction-market contract defines a payout for an outcome. The source and wording matter as much as the displayed odds.

Binary payouts

In a standard complementary binary pair, Yes pays $1 and No $0 when the defined event is confirmed; those payouts reverse when it is not. Settlement payouts are complementary, but executable bid and ask quotes can include spreads and fees.

Worked example: the threshold is part of the product

A hypothetical contract says ‘the first published annual inflation reading exceeds 3.0%.’ A release of exactly 3.0% does not exceed 3.0%. A later revision to 3.1% need not change settlement if the rules explicitly name the first release. ‘At least 3.0%’ or ‘final revised value’ would create different contracts.

This example contains no prediction about an actual release. It shows why precision in a contract definition changes the event being priced.

Scalar and multi-outcome designs

A scalar payoff can vary with a number rather than switch between zero and one. Multi-outcome markets may cover several candidates or ranges. Before assuming one winner, verify that outcomes are mutually exclusive, collectively exhaustive and governed by the same settlement rules.

Trading and finalisation

You can attempt to exit before resolution while trading is open. Whether you can exit at an attractive price depends on liquidity and venue rules. Prices can become more volatile near a deadline when new information arrives; they do not necessarily become steadily calmer.

Finalisation may require verification or dispute handling. Buying No is commonly a way to express the opposing event view; do not assume unrestricted short selling exists on every venue.

Compare the payout example with dated economic-event odds.