Prediction markets are simple financial instruments that let you bet on the outcome of a future event—anything from elections and economic data to movie box office results. Unlike buying a stock, you are buying a contract that pays out exactly $1.00 if the specific event happens, and $0.00 if it doesn’t.

The Golden Rule: Price Equals Probability

This is the single most important concept. The price of a contract tells you what the entire collective market currently believes is the probability of the event occurring.

• Contract Price: $0.70
  • Market Probability: 70% chance of the event happening.
• Contract Price: $0.25
  • Market Probability: 25% chance of the event happening.

How You Win

You profit by identifying when the current market price is wrong—meaning the probability implied by the price is different from the true probability based on your research.

If the market price is $0.60 (60% chance), but your analysis suggests the real chance is 80%, you have found value. You buy the contract for $0.60, and if the event occurs, you receive the $1.00 payout, earning a gross profit of $0.40 per contract. Your goal is to be smarter than the crowd, even if only slightly.

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Now forecast something wild!