How to Trade on Prediction Markets: A Step-by-Step Guide

Prediction markets let you take a position on real-world events, from sports championships to Federal Reserve decisions. The products traded on regulated U.S. prediction markets are generally called event contracts.

A typical binary market has a YES contract and a NO contract. The contract that matches the final outcome generally settles at $1, while the other settles at $0, according to the market’s stated rules. If a contract you bought settles at $0, you lose its purchase cost, and applicable fees remain a cost.

New to prediction markets? Start with our guide to prediction markets for the fundamentals before diving into trading mechanics.

This guide helps readers understand what prediction markets are and how they work.

What a Prediction Market Price Means

Every market on platforms like Fanatics Markets poses a binary question with two types of contracts: YES and NO. A YES contract pays $1.00 if the event happens and $0 if it doesn't. A NO contract is the inverse: it pays $1.00 if the event does not happen, and $0 if it does. The prices of YES and NO contracts always add up to approximately $1.00, minus any spreads (subject to platform).

Let's look at a concrete example: Say the market asks, "Will the NY Pro Basketball team win the championship?" and YES contracts are trading at 61 cents while NO contracts are at 39 cents. The market is saying there is roughly a 61% chance they win. If you buy YES at 61 cents and they win, you collect $1.00 per contract, a profit of 39 cents per contract (minus fees). If they lose, your contract pays $0 and you lose 61 cents per contract.

Before any trade, ask whether the current price is right, not just who you think will win. If YES is at 61 cents and you think the real probability is 75%, there is a potential edge to be gained. But the reverse is also true: even if your view turns out right, a sudden price move against you before you exit could still result in a loss. If you agree with 61 cents, there may be nothing to gain by trading.

Prices are for illustration only. Pricing subject to change — see Fanatics Markets App.

How to Trade a Prediction Market in Five Steps

Step 1: Browse available markets and read the rules

While perusing the categories and markets currently shown on Fanatics Markets, open the market rules before trading. Be sure to identify:

• The exact question the contract poses
• The scheduled close or event time
• The source used to determine the result
• How postponements, cancellations, corrections, or ambiguous outcomes are handled
• Any market-specific trading or settlement conditions

Step 2: Choose a market you have a view on

Look for a market where you genuinely hold an opinion about the current price. If YES is at 45 cents and you think the real probability is closer to 60%, that is a potential trade. If you have no strong opinion on the outcome, there may not be a reason to enter. Start with events you follow closely, such as sports you watch or economic data you track.

The four verticals that Fanatics Markets and other prediction platforms provide are each geared toward a different type of trader:

Step 3: Read the market price

The YES price tells you the implied probability and your potential profit. A YES contract at 40 cents costs 40 cents and pays $1.00 if correct, a profit of 60 cents per contract (minus fees). If the contract settles at $0, you could lose the entire 40 cents per contract you invested, plus fees.

Prices are for illustration only. Pricing subject to change — see Fanatics Markets App.

Step 4: Choose a side and quantity

Decide whether you are buying YES or NO based on your view, then choose how many contracts you want to buy. The minimum order is one contract, with a minimum payout of $1.00. The actual cost depends on the contract price plus the applicable per-contract fee.

For example, 100 contracts at 24 cents each cost $24.00 total, plus the applicable fees. That is the entire amount you could lose if the contracts settle at $0. The platform shows your total cost, fees, and potential payout before you confirm, so there are no surprises.

Step 5: Confirm your trade

Review the summary screen: event, direction (YES or NO), number of contracts, total cost, and maximum potential profit. When you are ready, confirm and place your trade.

A Worked Example: Pro Basketball Championship Market*

*Prices are for illustration only. Pricing subject to change — see Fanatics Markets App.

The three scenarios above represent the full range of outcomes for this position:

• Scenario A shows the value of exiting early; you take less profit but you eliminate the risk of the position reversing before settlement.
• Scenario B is the maximum return, but it requires holding through uncertainty.
• Scenario C is the loss outcome, and it is possible just like the other two.

In every scenario, you could lose the entire amount you paid to enter ($22.50 plus fees). Scenarios A, B, and C are all real possibilities. There are no guarantees of profit, and you may lose the entire amount you invest. The probability that Team A loses is just as real as the probability they win, which is reflected by the market price.

*Prices are for illustration only and subject to change. You may lose the entire amount you invest.

Browse sports markets on Fanatics Markets at fanaticsmarkets.com/sports.

A Worked Example: CPI Economic Market

*Prices are for illustration only. Pricing subject to change — see Fanatics Markets App.

The CPI example shows a different kind of trade than our basketball walkthrough. You are not backing a sports team to triumph or a candidate to win an election. Rather, in economy markets, you are taking a position on an economic data release based on personal views like your reading of the underlying indicators. There is no prolonged waiting for a game to end or the election winner to be called. The moment the data is published and the number hits, price moves sharply and the market resolves immediately.

Settlement speed is one of the things that makes economy markets different from sports. In sports, your position might stay open for months during a season or weeks during a playoff run. In an economy market tied to a specific data release, you often know the outcome within hours or days of entering.

The same rule applies here as in the Pro Basketball example: you could lose the entire amount you paid to enter, plus entry fees, and that outcome is just as possible as the profit scenario. The loss outcome is not a footnote. It is a real outcome that happens frequently.

*Prices are for illustration only and subject to change. You may lose the entire amount you invest.

Explore economy markets on Fanatics Markets at https://fanaticsmarkets.com/economy.

How to Exit a Trade Early

Selling early works the same way as buying a contract. You place a sell order on the order book at the current market price. If another participant is willing to buy your contracts at that price, the trade executes and your position is closed. You receive the sale proceeds and your exposure to the event ends.

How Traders Think About Selling Early

Traders sometimes sell early when the price has moved significantly in their favor, locking in a gain rather than risking a reversal. Others sell when new information has changed their view on the outcome, which can limit further loss.

Selling early also frees up funds tied to a position before its resolution date, even if that position might have ultimately settled favorably.

How Traders Think About Holding to Settlement

Other traders hold to settlement instead, particularly when an event is close to resolving. That tradeoff means a smaller, locked-in gain for the possibility of a larger payout, or a full loss if the position doesn't resolve favorably. Both outcomes remain possible up until settlement.

Understanding Fees on Fanatics Markets

Fees are separate from the contract price, which reflects supply and demand between traders on an open order book. Fees also apply per contract on every matched order, whether buying or selling.

Say a 30-cent contract carries a 1-cent fee. With $100.00 to trade, you'd divide that by the total cost per contract ($0.30 price + $0.01 fee = $0.31), giving you 322.58 contracts. Since you can only buy whole contracts, that rounds down to 322 contracts, for a total fee of $3.22 and a total contract cost of $96.60 ($99.82 combined), with the remaining $0.18 unused and staying in your account.

Selling works the same way. If you sell 100 contracts at 30 cents each, your gross proceeds are $30.00. At a 1-cent-per-contract fee, your total fee is $1.00, and $29.00 is credited to your account.

This example is for illustration purposes only. Contract prices and fee rates are hypothetical and subject to change within our stated range ($0.0034 to $0.0275). Actual fees are shown in the trading interface before you submit each order.

The fee schedule may be updated from time to time within the stated range. The minimum order is one contract plus the applicable fee (rounded up to the nearest cent), with a minimum payout of $1.00.

On Fanatics Markets:

• ACH deposits are free
• Debit card and Apple Pay deposits carry up to a 2% fee
• There are no fees on withdrawals

Fanatics Markets Trading Technologies, LLC is the wallet technology provider charging deposit fees. Full fee schedule details are available at https://fanaticsmarkets.com/legal/fcm-fee-disclosure.

How to Pick a Market: Five Checks Before Placing a Trade

1. Do I understand the exact contract? Read the question, definitions, resolution source, and special rules.
2. Do I understand the price? Treat the price as an implied market estimate, rather than a guarantee or objective probability.
3. Can the order execute as expected? Check current price, available liquidity, and when the position will close.
4. What is the total cost? Include contract cost and applicable fees. Be sure to distinguish settlement value from profit.
5. Can I accept the full loss? A contract that settles at $0 loses its purchase cost, and applicable

Common Beginner Mistakes to Avoid

1. Reading the Title but Not the Resolution Rules

Two contracts that sound similar can use different dates, definitions, or sources. Read the full rules before choosing YES or NO.

2. Treating Price as Certainty

A 92¢ YES contract still has a $0 settlement outcome if YES is incorrect. The maximum gross upside before fees is 8¢ per contract, while the contract-cost loss is 92¢ per contract.

3. Confusing Payout with Profit

A $1 settlement value is gross payout per correct contract. Subtract the contract purchase cost and applicable fees to calculate the actual trading result.

4. Assuming an Early Exit Is Guaranteed

Trading availability, liquidity, and available prices can change. A trader may be unable to sell at the expected time or price, given the circumstances.

5. Concentrating the Full Trading Budget in One Outcome

A single incorrect outcome can cause a total loss of that position's contract cost, plus fees. Holding several positions does not eliminate loss and may not reduce risk when the outcomes are related.

Responsible Trading on Fanatics Markets

Fanatics Markets takes responsible trading seriously and provides tools to help you manage how you trade:

• User Limits: Set deposit limits and in-app session limits to control how much you spend and how long you trade.
• Timeout: Temporarily disable all access to your account for anywhere between 3 and 365 days.
• Self-Exclusion: Prevent access to the Fanatics Markets app and other Fanatics Betting and Gaming products for 1 year, 5 years, or lifetime.

Only trade money you are fully comfortable losing entirely.

If trading starts to feel compulsive, or if you find yourself chasing losses, these tools are there to help. Concerned about your trading? Get specialized support from Birches Health nationwide. Visit BirchesHealth.com/Fanatics-Markets, call (833) 483-3838 or email [email protected]. You can also reach the support team directly at [email protected].

Prediction Market Trading FAQ

1. How do prediction markets work?

Participants buy and sell event contracts on an open order book. Each contract is priced between 1 cent and 99 cents, with the price reflecting the market's collective probability estimate for that outcome. When the event resolves, contracts on the correct outcome pay $1.00 and all other contracts settle at $0. You may lose the entire amount you invest.

2. How much money do I need to start trading prediction markets?

The minimum trade on Fanatics Markets is one contract, with a minimum payout of $1.00. The actual cost depends on the contract price plus the applicable per-contract fee. Only trade money you can afford to lose entirely.

3. What does it mean to buy YES on a prediction market?

Buying YES contracts means you believe the event will happen. If you are right and the event occurs, your YES contracts each pay $1.00. If you are wrong and the event does not occur, they pay $0. Your total cost is the number of contracts multiplied by the YES price. That is the entire amount you could lose if the contracts settle at $0. You may lose the entire amount you invest.

4. What does it mean to buy NO on a prediction market?

Buying NO contracts means you believe the event will not happen. If the event does not occur, your NO contracts each pay $1.00. If the event does happen, they pay $0. NO contracts are useful when you think the market is overestimating the probability of an outcome, or when you want exposure to a scenario where the expected outcome does not occur.

5. Can I sell my prediction market contracts before the event happens?

Yes. You can sell your position to exit early at any time before the event resolves. If the price has moved in your favor, you can lock in a profit. If it has moved against you, you can sell before settlement. Selling is done through the same order book you bought from, and you receive the current market price for your contracts.

6. What happens when a prediction market settles?

When the underlying event resolves, the market settles automatically. Contracts on the correct outcome pay $1.00 each and all other contracts pay $0. The settlement price is determined by the resolution criteria specified in the market description. Settlement funds are credited to your account balance.

For details on how cancellations and postponements are handled, see the resolution criteria in the specific market description, or visit the Fanatics Markets help center at support.fanaticsmarkets.com.

7. How do prediction market fees work on Fanatics Markets?

Fanatics Markets charges a per-contract trading fee each time you buy or sell a contract. The fee ranges from $0.0034 to $0.0275 per contract and is generally highest for contracts priced near $0.50, scaling down for contracts priced closer to $0.01 or $0.99. The exact fee is shown in the trading interface before you submit each order.

Fees apply only to orders that are matched and executed on the exchange. The fee schedule may be updated from time to time within the stated range.

See the Fanatics Markets fee schedule at https://fanaticsmarkets.com/legal/fcm-fee-disclosure for full details.

8. What happens if a prediction market event is cancelled or postponed?

Cancellation and postponement rules on Fanatics Markets vary by sport and event type. For most sports, if an event is cancelled before it starts, contracts are settled as Event Cancelled and voided. If an event starts but cannot be completed, settlement generally depends on whether the governing body declares an official result. Always read the resolution criteria for the specific market before trading, as rules can change per event or sport.

See our help guide on common sports instances in markets for a full breakdown.

9. What types of events can I trade on Fanatics Markets?

Fanatics Markets provides access to event contracts across four main verticals: Sports (Pro Football, Pro Basketball, Baseball, Hockey, Soccer, College Football, College Basketball, and more), Economy (Fed rate decisions, CPI, GDP, jobs reports), Politics (elections, Senate control, policy decisions), and Culture (major film awards, music awards, television awards, and entertainment outcomes). New markets are added regularly based on upcoming events.

10. Where can I learn more about prediction markets?

The Fanatics Markets Learn Hub covers prediction market fundamentals. See our complete guide to prediction markets to learn how to read prices, manage risk, and more. You can also explore live markets at fanaticsmarkets.com to see how event contracts are priced in practice.

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*HYPOTHETICAL PERFORMANCE RESULTS HAVE MANY INHERENT LIMITATIONS, SOME OF WHICH ARE DESCRIBED BELOW. NO REPRESENTATION IS BEING MADE THAT ANY ACCOUNT WILL OR IS LIKELY TO ACHIEVE PROFITS OR LOSSES SIMILAR TO THOSE SHOWN. IN FACT, THERE ARE FREQUENTLY SHARP DIFFERENCES BETWEEN HYPOTHETICAL PERFORMANCE RESULTS AND THE ACTUAL RESULTS SUBSEQUENTLY ACHIEVED BY ANY PARTICULAR TRADING PROGRAM.

ONE OF THE LIMITATIONS OF HYPOTHETICAL PERFORMANCE RESULTS IS THAT THEY ARE GENERALLY PREPARED WITH THE BENEFIT OF HINDSIGHT. IN ADDITION, HYPOTHETICAL TRADING DOES NOT INVOLVE FINANCIAL RISK, AND NO HYPOTHETICAL TRADING RECORD CAN COMPLETELY ACCOUNT FOR THE IMPACT OF FINANCIAL RISK IN ACTUAL TRADING. FOR EXAMPLE, THE ABILITY TO WITHSTAND LOSSES OR TO ADHERE TO A PARTICULAR TRADING PROGRAM IN SPITE OF TRADING LOSSES ARE MATERIAL POINTS WHICH CAN ALSO ADVERSELY AFFECT ACTUAL TRADING RESULTS. THERE ARE NUMEROUS OTHER FACTORS RELATED TO THE MARKETS IN GENERAL OR TO THE IMPLEMENTATION OF ANY SPECIFIC TRADING PROGRAM WHICH CANNOT BE FULLY ACCOUNTED FOR IN THE PREPARATION OF HYPOTHETICAL PERFORMANCE RESULTS AND ALL OF WHICH CAN ADVERSELY AFFECT ACTUAL TRADING RESULTS.