What are prediction markets, and how do they work?

A prediction market is a place where people buy and sell contracts on whether something will happen, such as a player winning a tennis match. Each contract pays $1 if it happens and nothing if it doesn't, so its price, somewhere between 1¢ and 99¢, works as the crowd's estimate of the chance. A player at 62¢ is being given about a 62% chance. In the US, the regulator, the Commodity Futures Trading Commission (CFTC), describes a prediction market as a CFTC-registered exchange that offers event contracts. The facts on this page come from the CFTC, Kalshi and Polymarket, checked on 1 November 2026.

77 Tennis is a free demo built on live prediction market prices for tennis, so this is the part of the topic I know best. The ideas are the same for elections, economics or anything else these markets list.

How a prediction market works

1. Someone lists a question with a clear yes-or-no answer and written rules for settling it: "Will Player A win this match?"
2. Traders buy and sell contracts on each side. Kalshi says it matches a member buying Yes with a member buying No, and that the two stakes must add up to $1. Polymarket's help page says each pair of shares is backed by $1 and that the person on the other side is another user, not the platform.
3. The price moves as people trade. Both platforms say prices are set by the traders, not by the exchange.
4. You can get out early. Both say you can sell your position at the current market price before the event is decided.
5. The market settles. When the answer is known, the winning side pays $1 a contract and the losing side pays nothing.

The exchange earns its money from trading fees. Kalshi's help page says it has no financial stake in which way an event goes. Polymarket fees explained and what is Kalshi set out what each one charges.

Why the price works as a probability, and where it doesn't

A contract that pays $1 if something happens is worth about its chance of happening. If A really wins 62% of the time, then over many matches a 62¢ share pays back 62¢ on average, so nobody gains by paying more or selling for less. That's why a price of 62¢ and a 62% chance are treated as the same thing. Kalshi's help page says a Yes price of 70¢ corresponds to a 70% chance, and Polymarket's says, in its own words, "Prices = Probabilities."

Three things stop the price from being an exact probability:

• The spread. There's a gap between the best price to buy and the best price to sell, so the two sides rarely add up to exactly $1.
• Fees. Both Polymarket and Kalshi charge a trading fee that depends on the price.
• The crowd can be wrong. A price is an estimate, not a forecast anyone guarantees. Even if prices were perfectly fair, a player at 70¢ would still lose about 3 matches in 10.

To turn a price into decimal or American odds, use the odds converter. To compare a market price with a bookmaker's odds fairly, strip the bookmaker's margin first with the no-vig calculator.

Prediction markets vs sports betting

Because the price is set by traders, you can treat a prediction market the way you'd treat any market: buy, then sell when the price moves, before the event is over. Tennis trading vs tennis betting goes through what that changes in practice.

Who regulates prediction markets in the US?

The CFTC. In a notice published in the Federal Register on 16 March 2026, it said it has used the term event contract since at least 2008 for derivative contracts typically with a binary payoff based on the outcome of an event, and it defined a prediction market as a CFTC-registered designated contract market or swap execution facility that offers them. Announcing that notice on 12 March 2026, which asked the public for comments on future rules, the CFTC's chairman said the agency will exercise its exclusive jurisdiction over prediction markets.

• Kalshi. The CFTC designated KalshiEX LLC as a contract market in November 2020.
• Polymarket. Polymarket's own press material describes Polymarket US as a CFTC-regulated designated contract market. The Terms of Use for polymarket.com, the international site, list restricted territories where trading isn't permitted, including the United States and the United Kingdom.

Whether a prediction market counts as gambling where you live is a legal question for the platform's terms and your local rules. This page reports what the regulator and the platforms say, and stops there.

Tennis on prediction markets

Tennis suits a prediction market because the price can move on every point. A break of serve shifts a match price by several cents in seconds, and a tiebreak can swing it further still. Why the price jumps on a break of serve shows the numbers.

Polymarket and Kalshi both list ATP match markets, and in August 2026 Polymarket announced that it had become the official prediction market provider of the ATP Tour. Their rules differ in places that matter to a trader, most of all on walkovers: Polymarket pays 50¢ a share, while Kalshi resolves to a fair price. Polymarket odds explained, and Kalshi vs Polymarket compares them in full.

For a first real trade, how to trade tennis on Polymarket goes through it step by step.

The 77 Tennis demo shows Polymarket's live tennis prices and lets you trade them with $1,000 of play money, so you can watch how a prediction market reacts to a match before deciding whether to use one.

Sources

All checked on 1 November 2026: the CFTC's Federal Register notice Prediction Markets of 16 March 2026; CFTC press releases 9194-26 of 12 March 2026 and 8302-20 of 4 November 2020; Kalshi's help articles What are prediction markets, How are prices determined and How does Kalshi make money; Polymarket's help article What is Polymarket and its Terms of Use; and Polymarket's press release of 3 August 2026 on the ATP Tour. Where this page and those pages disagree, those pages win.

FAQ

What is a prediction market?

A market where people trade contracts that pay $1 if an event happens and nothing if it doesn't. The price, between 1 and 99 cents, works as the crowd's estimate of the chance. In the US, the CFTC describes a prediction market as a CFTC-registered exchange that offers event contracts.

How do prediction markets make money?

From trading fees. Kalshi says it charges a transaction fee and has no financial stake in the outcome, and on both Kalshi and Polymarket the other side of your trade is another trader.

Are prediction markets gambling?

The CFTC calls what they list event contracts, a kind of derivative, and its chairman said in March 2026 that it will exercise its exclusive jurisdiction over prediction markets. How the law where you live treats them is a question for the platform's terms and your local rules.

Can you lose more than you put in?

Not when you buy contracts: the most a contract can be worth is $1 and the least is nothing, so the most you can lose is what you paid, plus fees.

Are prediction market prices accurate?

A price is the crowd's estimate, not a guarantee. Even a fair price of 70 cents means the other side wins about 3 times in 10, so a single surprise doesn't show the price was wrong.