What Is A Prediction Market?

A prediction market is a platform that facilitates betting on countless real-world events, spanning politics, culture, economics, and sports. Its defining feature is the buying and selling of contracts.

Prediction markets are peer-to-peer, meaning users bet against each other, with the platform typically charging transaction fees. This is distinct from a betting platform that offers odds with a built-in fee, and users bet against the platform itself.

Prediction markets are also called stock-market-style betting, binary options trading, or yes/no betting.

How Do Prediction Markets Work?

Event contracts resolve to 0 or 100% (in the U.S., $0 or $1) at the conclusion of the market, stipulated in its rules.

For example, if you bet on the winner of the presidential election, a winning contract would pay out $1, and a losing contract would pay out $0. The market would settle when a winner is called.

Users can have just a few contracts or up to millions.

Contracts can be bought and sold at any time up to the market’s settlement. Users are not required to hold their bets until they resolve to $0 or $1. This is sometimes referred to as cashing out a wager.

Each market has its own rules, including the source of information used to settle it. 

Are Prediction Markets Gambling?

These platforms involve risking money for the chance to win more, fitting the definition of gambling.

These platforms resemble poker, where a fee (the rake) is collected on each hand. Despite a strategic component, poker is still gambling.

Prediction markets may legally fall outside the definition of gambling. As of early 2026, this was a hotly debated topic in the U.S., with numerous lawsuits involving Kalshi and Polymarket.

Are These Platforms Addictive?

Prediction markets can be addictive because they are gambling, and any gambling product has this potential. 

They use mobile app features to drive engagement, which can cause problem gambling.

Like online gambling sites, prediction markets offer bonuses to attract users. Critics say many operators also use manipulative advertising.

Typically, they have minimal responsible gambling safeguards and don’t display a helpline number.

For sports betting markets, they offer potentially addictive bet types such as parlays.

What is the Wisdom of the Crowd?

Prediction markets aggregate public opinion in an attempt to harness the so-called “wisdom of the crowd.”

In October, ICE, owner of the NYSE, invested up to $2 billion in Polymarket. The value was in crowdsourcing knowledge.

“ICE will become a global distributor of Polymarket’s event-driven data, providing customers with sentiment indicators on topics of market relevance,” the company said in a press release.

Companies and investors value this data to make decisions or hedge risk.

Suppose you are an ordinary American. You might see a prediction market as a way to earn extra cash, but you have realistic expectations. Betting is not a way to get rich.

You spend time researching bets and win some, and your “portfolio” grows slowly.

Due to fees and taxes on your profits, your effective hourly profit is low, but you enjoy using prediction markets in your spare time.

The catch: Your activity could generate data that helps wealthier people earn more.

The “wisdom of the crowd” benefits companies and investors more than the public. Before betting, ask yourself if your effort serves you or mainly enriches others.

Are Prediction Markets Legal?

Their legality depends on the jurisdiction. In the U.S., prediction markets are on shaky legal footing.

The Commodity Futures Trading Commission regulates prediction markets. Despite federal oversight, numerous states have sued to stop them from offering sports betting.

Markets in politics and economics are not involved in state lawsuits.

As of 2026, sports betting on prediction markets is potentially illegal. Other markets appear legal.

Numerous countries have banned these websites over election betting.

Concerns are mounting that a prediction-style online casino product could be developed.

How Accurate Are Prediction Markets?

Their forecasting accuracy depends on the topic. In major political elections, they can be better than polls.

For data on publicly traded companies, prediction markets can also be accurate, sometimes better than analysts, especially when analysts are biased.

Sometimes, these platforms include insider data, which is controversial.

For live sports, the betting sites don’t provide so-called accuracy.

What Are the Top Prediction Markets?

In the U.S., the leading ones are Kalshi, Polymarket, DraftKings, and FanDuel. Each platform carries a significant risk of problem gambling and financial loss.

There are dozens of prediction markets, some regulated and others unregulated. Big brands such as CNN and the NHL have backed leading platforms.

If you use one, it’s best to exercise caution and use a regulated platform. Quit betting if you develop unhealthy habits.