What Are Prediction Market Contracts?
Every prediction market trade is really a trade in a contract with specific settlement rules. Understanding those rules is the difference between reading a price and understanding what you're actually holding.
The binary contract
The most common structure is the binary contract: a single yes/no question with two possible payouts. If the event happens, the "yes" side settles at a fixed value (commonly $1) and "no" settles at $0. If it doesn't happen, the payouts flip. Because the two sides always sum to that fixed value, the price of one side directly implies the price of the other — a "yes" trading at 70 cents means "no" is trading at roughly 30.
Beyond yes/no: scalar and multi-outcome contracts
Not every question is binary. A scalar contract settles somewhere along a numeric range — for example, a contract tied to where a monthly economic figure lands, with the payout scaling based on the actual reported number rather than a single threshold. Multi-outcome markets split a single question into several mutually exclusive contracts — one per candidate in a multi-way race, say — where exactly one settles at full value and the rest settle at zero.
Settlement rules and resolution sources
Every contract is written against a specific resolution source: an official results feed, a government data release, a defined news standard. That source matters more than it might seem — ambiguity in how a question is worded, or a source that reports late or gets revised, is one of the more common ways a market's outcome surprises traders who assumed the resolution would be straightforward.
Expiration and time horizon
Contracts carry an expiration tied to when the underlying event is expected to be decided — an election date, a scheduled policy announcement, a season's end. Prices typically become less volatile and more confident as expiration approaches and less uncertainty remains, then settle immediately once the resolution source reports the outcome.
How traders actually participate
- Buy and hold to settlement — collect the full payout if right, lose the stake if wrong.
- Buy and sell early — exit at the current market price without waiting for resolution, capturing a gain or loss based on how the price moved.
- Sell short — take the opposite side of a contract you believe is overpriced, without ever having bought it first.
See live contracts and their current prices on AIOVEL's prediction markets dashboard →
Quick answers
What happens to a contract when the event resolves?
It settles automatically at its final value — typically $1 for the correct outcome and $0 for every other outcome — based on the market's stated resolution source and rules.
What's the difference between a binary and a scalar contract?
A binary contract has exactly two outcomes, yes or no. A scalar contract settles somewhere along a numeric range, so its payout scales with where the actual figure falls rather than snapping to an all-or-nothing result.
Do I have to hold a contract until it settles?
No. Contracts can be bought and sold at any point before settlement at the current market price, so traders can exit a position early rather than waiting for resolution.