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Foundations · 8 min read

What Is a Prediction Market?

A prediction market is a live betting exchange where prices are probabilities. This guide explains how they work, why they're more accurate than polls, and how to read your first Polymarket order book.

Last updated: 30 July 2026

Definition

The one-sentence version

A prediction market is an exchange where you buy YES or NO shares in whether a specific future event will happen — and the price you pay is the crowd's implied probability of it happening.

If a contract on "Will the Fed cut rates in September?" trades at 62¢, the market is pricing a 62% chance. Buy YES at 62¢; if the Fed cuts, your share pays $1 and you make 38¢. If it doesn't, your share goes to $0.

Mechanics

How prediction markets work under the hood

Every binary market has four moving parts:

  • The contract. A precise, resolvable question with a known deadline (e.g. "Will BTC close above $150K on Dec 31, 2026?").
  • The order book. A live list of bids and asks on both YES and NO. Prices always sum to $1 minus a tiny spread.
  • Liquidity. Market makers quote both sides. Thicker books mean tighter spreads and less slippage.
  • The oracle. A neutral resolver that reads the real-world outcome and pays winners. Polymarket uses UMA's optimistic oracle.
Why they work

Why prices are (usually) more accurate than polls

A poll asks 1,000 people who they'd vote for. A prediction market asks anyone in the world to put money on the answer — and that skin in the game filters out partisan noise. Wrong prices become free money, so someone corrects them.

The catch: this only works when there's real liquidity. On a $50M-volume election market, the price is a serious estimate. On a $2K-volume market about who wins Eurovision, it's mostly vibes.

Getting started

Where do you actually trade one?

The biggest venue today is Polymarket — on-chain, USDC-settled, global. Kalshi is the CFTC-regulated US alternative. Both let you buy YES/NO shares and sell them any time before settlement. Compare them side by side in our Polymarket vs Kalshi guide, or jump straight into a Polymarket tutorial.

On FundMyOpinion you skip the wallet setup: trade a simulated account against live Polymarket prices, pass one evaluation, and get funded up to $100K.

FAQ

Frequently asked questions

A prediction market is an exchange where you buy YES or NO shares on whether a real-world event will happen. Prices float between 1¢ and 99¢ and represent the crowd's implied probability. If the event resolves YES, every YES share pays $1.

Traders post buy and sell orders on a binary contract. The mid-price is the market's implied probability. When the event settles, the winning side is paid $1 per share and the losing side goes to $0. Platforms like Polymarket use an on-chain oracle (UMA) to resolve outcomes.

Historically, yes — on high-liquidity questions. Because participants risk real money, mispricings get arbitraged away faster than polls can update. Accuracy degrades on illiquid or long-dated markets where few traders bother to price in new information.

A sportsbook sets odds against you and profits from the vig. A prediction market is peer-to-peer: you trade against other users, prices move continuously, and you can sell your position before settlement. Fees are typically far lower.

Primary sources

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