Binary bets on events.© fotoduets/stock.adobe.com; Photo illustration Encyclopædia Britannica, IncPrediction markets exist at the intersection of crowd wisdom, financial innovation, and speculative trading. They are increasingly capturing the attention of individual investors and traders worldwide. At their core, these platforms allow participants to buy and sell contracts based on the outcomes of future events, including elections, corporate earnings, sports championships, and economic indicators. But unlike traditional betting, prediction markets harness the collective intelligence of participants to generate what can be accurate forecasts. They’re also controversial, targeted by critics who claim these markets operate essentially as unregulated, untaxed betting parlors.

　　What are prediction markets and how do they work?Prediction markets are online or digital platforms on which participants trade contracts that typically pay out based on a binary outcome—a “yes” or “no” sort of proposition. A contract may cost $0.60 and pay $1 if a particular candidate wins an election, for example. The price implies a 60% probability of that outcome.

　　Those who trade or speculate in the prediction markets understand the “self-correcting” mechanism inherent in them. For example, if you believe the chances of the candidate winning an election are 70%, but the market is currently pricing the contract at $0.60, you could generate a 10-cent profit if the price rose to $0.70. If more and more people share that view and buy accordingly, the market price in theory will climb toward the “true” probability.

　　When the expiration date approaches (the day an election is officially decided, in this example), a contract is either worth zero or $1, depending on the outcome. If you’ve ever traded options, it’s akin to an option being in the money or out of the money at expiration. 

　　Such a dynamic creates incentives for participants to research thoroughly and trade based on genuine beliefs rather than wishful thinking. Money talks, and in prediction markets, it speaks the language of probability.

　　A brief history: From academic experiment to mainstream phenomenonPrediction markets aren’t new; they evolved from academic curiosity to legitimate financial instruments over several decades. One early version, the Iowa Electronic Markets, was launched in 1988 at the University of Iowa and pioneered the concept by allowing small-scale trading on political outcomes. These early experiments frequently outperformed traditional polling in predicting election results.

　　Intrade, which operated from 2001–13, brought prediction markets to mainstream attention by offering contracts on everything from political events to entertainment awards. Despite regulatory challenges that ultimately led to its closure, Intrade demonstrated the commercial viability and accuracy of prediction markets.

　　The broader regulatory pullback initiated by the Trump administration has helped drive major investments in prediction markets and vaulted these exchanges in the public eye. Two top prediction markets are Kalshi and Polymarket.

　　KalshiKalshi, founded in 2018 by two former students at the Massachusetts Institute of Technology (MIT), operates as a U.S. exchange regulated by the Commodity Futures Trading Commission. (The CFTC oversees U.S. futures and OTC derivatives markets.) Kalshi’s offerings include regulated event contracts covering economic indicators, weather events, political outcomes, and sporting events.

　　PolymarketA blockchain-based platform that bills itself as the world’s largest prediction market, Polymarket offers at least a dozen contract categories across cryptocurrencies, corporate earnings, politics, sports, climate/weather, and others, as well as “mentions” (e.g., what will Federal Reserve Chair Jerome Powell say at a press conference following a meeting of the Federal Open Market Committee?). Polymarket uses cryptocurrency (specifically, stablecoin USDC), to enable global participation without relying on traditional banking, which depends on cross-border exchange rates and currency conversions.

　　Bigger, more established exchanges and other financial industry players are increasingly getting in on the prediction market game. In October 2025, Intercontinental Exchange (ICE), which owns the New York Stock Exchange, said it will invest up to $2 billion in Polymarket (a deal that valued Polymarket at about $8 billion). Under the agreement, ICE will become a global distributor of Polymarket’s event-driven data, providing market sentiment indicators to institutional clients worldwide. As of November 2025, Polymarket isn’t open to U.S. participants, but ICE’s involvement signals growing interest in bringing prediction-market data into the mainstream financial system.

　　Later that month, sports betting giant DraftKings (DKNG) moved into the prediction-markets arena by acquiring Railbird Exchange, a CFTC-regulated futures exchange, giving the company a platform on which to offer event contracts.

　　The numbers game: Market size and trading volumesThe prediction market ecosystem has seen explosive growth, with platforms now facilitating billions in annual trading volume. Polymarket alone has processed over $3 billion in lifetime volume, with individual markets sometimes exceeding $100 million in total trading activity during major events like presidential elections.

　　Kalshi, despite operating in a more regulated environment, has seen steady growth since its launch, with millions in monthly trading volume across diverse event categories. In 2024, Kalshi’s biggest trading vehicle (that year’s U.S. presidential election) generated about $527 million in trading volume. Trading soared again following the start of the 2025 National Football League season. 

　　These figures may represent just the tip of the iceberg, as regulatory clarity and institutional adoption could unlock significantly larger markets.

　　On-chain prediction markets: The blockchain difference“On-chain” prediction markets like Polymarket operate on blockchain networks, which fundamentally changes how these platforms function. Unlike traditional platforms that require users to deposit funds with a central authority, blockchain-based markets use smart contracts to automatically execute trades and payouts.

　　This structure offers several advantages: global accessibility without geographic restrictions, transparent and immutable transaction records, and reduced default risk (since smart contracts handle settlements automatically). Participants can trade using cryptocurrency wallets without creating traditional accounts or undergoing extensive verification processes.

　　However, on-chain markets also face unique challenges, including regulatory uncertainty in many jurisdictions, the complexity of cryptocurrency interactions for mainstream users, and potential technical risks associated with smart contract vulnerabilities.

　　Prediction markets: Investing, trading, or gambling?Prediction markets straddle the intersection of investing, traditional futures trading, and straight-up gambling. Whether that’s a good or bad thing depends on whom you ask.

　　Unlike futures or equities, many prediction market contracts are not based on underlying assets; instead, they derive value from event outcomes. That’s one thing that distinguishes them from conventional securities trading, where stocks represent ownership stakes in companies with intrinsic value.

　　Proponents argue that unlike pure gambling, prediction markets serve legitimate economic functions, including price discovery, risk management, and information aggregation. Also, a prediction market contract could serve as a hedging instrument—for example, a farmer might buy a weather outcome contract based on drought that could offset crop losses.

　　Are you an investor or a trader? Or perhaps a bit of both?Encyclopædia Britannica, Inc.Critics consider prediction markets a de facto digital casino, except without proper regulatory or tax treatment. Online sportsbooks are illegal in several U.S. states, but residents in those states can circumvent those restrictions and place sports bets on Kalshi or other prediction markets. At least seven states have sent cease-and-desist letters to Kalshi, and the Massachusetts attorney general sued Kalshi in September 2025, alleging that the company provides sports wagering under the guise of event contracts.

　　The bottom lineSetting aside the gambling debate for the moment, it’s clear that prediction markets are emerging as increasingly popular forums to assess the “crowd,” and gauge and make decisions around the outcomes of high-profile events in sports, politics, the economy, and more. You don’t have to trade on a prediction market to use it. Even just watching prices move can offer a quick read on what the crowd thinks—insight that might shape an investment, a business decision, or simply how you read the odds in the world around you.

　　If regulatory frameworks evolve and institutional adoption continues to grow, prediction markets could become integral components of the modern financial ecosystem, offering new ways to understand, measure, and—if you’re willing to take the risk of being wrong—try to capitalize on uncertainty.

　　Specific companies and platforms are mentioned in this article for educational purposes only and not as an endorsement.

　　ReferencesA Primer on Prediction Markets | wifpr.wharton.upenn.edu What Are Prediction Markets? The Future of Real-time Trading and Forecasting | nasdaq.com