BINARY CONTRACTS EXPLAINED
Plain English
Every prediction market contract has exactly two outcomes: Yes (pays $1.00) or No (pays $0.00). You buy Yes if you think the event happens, No if you think it doesn't. There are no partial payouts, no dividends, no earnings reports — just the binary resolution of a specific question.
Going deeper
Binary contracts have a simple payoff structure: the contract settles at $1.00 if the event occurs and $0.00 if it doesn't. Your profit/loss is straightforward: if you bought Yes at $0.45 and the event occurs, you profit $0.55 per contract. If it doesn't occur, you lose $0.45. The contract's value approaches either $1.00 or $0.00 as the resolution date nears and the outcome becomes clearer. Unlike options, there is no time-decay sensitivity or Greek exposure to manage — the primary variable is simply: will this happen? Contract specifications matter: know the exact resolution criteria before trading. 'Will the Fed raise rates?' might mean specifically the September meeting — not any meeting that year.
Examples
Payoff Math
You buy 100 Yes contracts at $0.45 = $45 cost. Event occurs: 100 × $1.00 = $100 received. Profit: $55 (+122%). Event doesn't occur: $0 received. Loss: $45 (-100%). The downside is always capped at what you paid. The upside is always capped at $1.00 minus your entry price.
Resolution Criteria
Contract: 'Will Tesla deliver more than 500,000 vehicles in Q3 2025?' Read the fine print. Does it use Tesla's official press release numbers or SEC filing numbers? The one-sentence resolution description is the most important thing to understand before trading any contract.