WHAT ARE PREDICTION MARKETS?
Plain English
Prediction markets let you buy and sell contracts tied to whether a specific event will happen. If you buy a 'Yes' contract on 'Will the Fed raise rates in September?' and the Fed raises rates, the contract pays out. If they don't, it expires worthless. Price = probability.
Going deeper
Prediction markets are exchange-based platforms where participants trade binary contracts (Yes/No) on the outcome of future events. Unlike traditional financial markets where you're pricing a stock or commodity, in prediction markets you're pricing the probability of a discrete outcome. Prices range from $0 to $1.00 (or $0.01 to $0.99 in cents on Kalshi). A contract trading at $0.65 implies the market believes there is a 65% chance that event will occur. This makes prices immediately interpretable as probabilities — a feature unique to this market structure. Kalshi is the leading CFTC-regulated prediction market in the US, offering contracts on economic data, Fed decisions, elections, weather, sports, and financial events.
Examples
Basic Contract Example
The Kalshi contract 'Will CPI inflation exceed 3.5% in August?' is trading at $0.38. This means the market implies a 38% probability of above-3.5% CPI. If you believe inflation will actually be higher, you buy Yes at $0.38. If CPI comes in at 3.7%, the contract settles at $1.00 — a $0.62 profit per contract.
Contrast with Stocks
Buying Apple stock involves pricing an ongoing business with unlimited upside and downside. Buying a Kalshi contract has a defined binary outcome — it either pays $1.00 or $0.00. The question isn't 'how much will it move' but 'will it happen or not.' This changes the analysis entirely.