What Are Prediction Markets? A Complete Guide

July 31, 202613 min readUpdated July 31, 2026

Quick Answer

A prediction market is a regulated exchange where participants trade contracts on the outcome of real-world events, from sports and elections to economic indicators. Each contract is priced between 1 cent and 99 cents, reflecting the market's estimated probability that the event will occur.

Prediction markets have quietly become a fast-growing corner of finance.

Global trading volume quadrupled over the past two years, reaching $64 billion in 2025. Weekly volumes this year are running above $5 billion, and by 2030 it is predicted that total volume will reach up to $1 trillion.

The turning point was the 2024 U.S. presidential election, which brought prediction markets into mainstream conversation and introduced millions of Americans to event-contract trading for the first time. Yet for many of those new participants, the mechanics behind prediction markets remain unclear.

This guide covers how prediction markets work, what you can trade on them, how pricing changes as real-world facts change, and how to learn more about Fanatics Markets, a CFTC-regulated platform available in the United States.

Event contracts carry risk of total loss and changing prices. Not good for all investors. Not available in all states. Must be 21+. See important disclosures here.

How Do Prediction Markets Work?

What is a prediction market?

In a prediction market, participants buy and sell contracts tied to the outcome of real-world events. Each contract is priced between 1 cent and 99 cents, reflecting the crowd's collective read on how likely the event is to happen. When the event resolves, contracts on the correct outcome pay $1.00. All other contracts settle at $0.

What Is an Event Contract?

An event contract is a Yes/No financial instrument tied to a specific, verifiable outcome. If the event happens, Yes contracts pay $1.00 each and No contracts pay $0. If the event does not happen, No contracts pay $1.00 and Yes contracts settle at $0.

Let's look at a concrete example: say the market asks, "Will NY win the 2026 Pro Basketball Championship?" If Yes contracts are trading at 12 cents, the market is saying there is roughly a 12% chance New York wins it all. On Fanatics Markets, these are always called event contracts.

How Prices Become Probabilities

The price of an event contract is a live probability estimate. A Yes contract trading at 61 cents means the market collectively thinks there's a 61% chance that outcome happens. As new information comes in, prices shift. This could be due to a late injury report, an economic data release, or a change in election polling. The market absorbs it all and reacts and reprices.

Prices work through an order book, the same structure that stock exchanges use. Buyers post bids (the most they're willing to pay) and sellers post offers (the least they'll accept). When a bid and an offer match, a trade happens and a new price is set. Active markets tend to have tight spreads and more reliable price signals.

A Worked Trade Example (Step-by-Step) *

Here is what a trade looks like from entry to exit, using a football example.

Scenario: "Will PHI win the Pro Football Championship?" Yes contracts are currently trading at 6 cents. Prices are for illustration only. Pricing subject to change — see Fanatics Markets App.

Step 1 - Entry: You buy 100 Yes contracts at 6 cents each. Total cost: $6.00. That's also the most you can lose on this position, should PHI fail to win it all.

Step 2 - Price movement: PHI wins three straight games and sentiment shifts. Yes contracts rise to 10 cents.

Step 3a - Early exit: You sell your 100 contracts at 10 cents. You get back $10.00. Profit: $4.00.

Step 3b - Hold to settlement: If you hold and Philadelphia wins the Championship, contracts settle at $1.00. Payout: $100.00. Profit: $94.00.

Step 3c - Loss scenario: If PHI gets knocked out of the playoffs, contracts settle at $0. You lose your initial $6.00.

What Can You Trade On Prediction Markets?

Quick Answer

Any event with a clear, verifiable outcome and a resolution date can be traded on a prediction market. On Fanatics Markets, that covers four main categories: Sports, Economy, Politics, and Culture. Each has dozens of active markets running at any given time, from season-long championship contracts to same-week economic data releases.

Sports Markets

Sports is where Fanatics Markets has the deepest footing. The platform has strong ties to professional sports, with coverage for Pro Football, Pro Basketball, Baseball, Hockey, Soccer, College Football, College Basketball, and more across multiple contract types and time horizons.

A few examples of what you might see: Will PHI win tonight's game? (Yes at 55 cents). Will the NY Pro Basketball team win the championship? (Yes at 65 cents). Will LA win the league title? (Yes at 20 cents). Prices are for illustration only.

Explore sports prediction markets on Fanatics Markets at fanaticsmarkets.com/sports.

Economy Markets

Economy markets let you take a position on major macroeconomic events like Federal Reserve rate decisions, Consumer Price Index (CPI) releases, jobs reports, and GDP growth figures. If you follow economic data closely and have a view that differs from the market's, these contracts give you a way to act on it.

Example: Will the Federal Reserve cut interest rates at the January 2026 FOMC meeting? Yes contracts trading at 42 cents implies the market puts the probability of a cut at about 42%. Prices are for illustration only.

Browse economy prediction markets on Fanatics Markets at fanaticsmarkets.com/economy.

Politics Markets

The 2024 U.S. presidential election put political prediction markets on the map, with over $3 billion in election contract volume moved through platforms that cycle. Today, politics markets cover elections at every level: Senate control, Supreme Court decisions, and major policy outcomes.

Example: Will a specific candidate win their party's presidential nomination? Yes contracts for one candidate might trade at 26 cents while another trades at 39 cents, reflecting the market's current probability estimates. Prices are for illustration only.

View politics prediction markets on Fanatics Markets at fanaticsmarkets.com/politics.

Culture and Entertainment Markets

Culture markets apply prediction market mechanics to entertainment: TV awards, movie awards, music rewards, TV renewals, box office results and more. For many users, this can be a natural entry point since you don't need to follow economic data or read election polls. Rather, you just need a strong opinion on whether a film, artist or song will win an award.

Example: Who will be the top-streaming artist in 2026? Yes contracts reflect the market's current probability estimates for each artist. Prices are for illustration only.

Discover culture prediction markets on Fanatics Markets at fanaticsmarkets.com/culture.

A Brief History of Prediction Markets

Prediction markets have roots in academic research going back nearly 40 years. What has changed in recent history is scale, regulation, and public awareness. These key milestones trace the industry from a university experiment to a mainstream financial product.

YearMilestone1988A U.S. university launches the first modern prediction market, designed to forecast presidential election outcomes as an academic research project.2003A Dublin-based prediction market platform begins attracting mainstream attention in the United States.2014A prediction market platform launches under a CFTC no-action letter, making small-scale political contract trading available to U.S. users for the first time within a regulatory framework.2022The first fully CFTC-regulated prediction market exchange in the United States launches, a significant regulatory milestone for the industry.2024The U.S. presidential election produces over $3 billion in election contract volume across multiple platforms. Major financial outlets begin covering prediction markets.2025Global prediction market volume reaches $64 billion. Fanatics Markets launches as a CFTC-regulated platform, currently available in the United States.2026Monthly trading volumes exceed $20 billion. Major financial outlets and sports media now cover prediction market prices as a routine data point.

The practical effect of CFTC and NFA oversight has been meaningful for consumer protection, since regulated platforms are subject to federal compliance requirements covering market conduct, financial integrity, and ongoing reporting obligations.

How to Get Started on Prediction Markets

Fanatics Markets is available in the United States and runs through a shared Fanatics wallet. If you already have a Fanatics account on another platform, your account will carry over. You must be 21 or older and in an eligible jurisdiction to trade.

Here's how the Fanatics trading experience works.

Explore Prediction Markets

Go to fanaticsmarkets.com and browse what's live across Sports, Economy, Politics, and Culture. Each market shows the current Yes and No contract prices, the event's resolution date, and recent trading activity. You can look through the full market catalog without placing a trade.

Find a Market

Use the category navigation to find a specific upcoming event. Each market page lays out the contract details: what Yes and No represent, how and when the event resolves, and the current order book. Markets run 24/7 and prices update continuously.

Place Your First Trade

Pick a market, choose Yes or No, and enter how many contracts you want to buy. The platform shows your total cost before you confirm. You could lose the entire amount you spend, including any fees. There are no hidden fees or additional charges beyond what you pay upfront.

New to trading contracts? Our guide on how to trade on Fanatics Markets walks through funding your account, reading the order book, and entering your first order step by step.

Event contracts carry risk of total loss and changing prices. Not good for all investors. Not available in all states. Must be 21+. See important disclosures here.

Exit Early or Hold to Settlement

Once you hold a position, you have two ways out. You can sell your contracts before the event resolves (pending liquidity), taking a gain or cutting a loss at whatever the current price is. Or you can hold to settlement: if your position is correct, each contract pays $1.00; if wrong, they settle at $0.

Visit fanaticsmarkets.com to see what's trading today.

Prediction Markets FAQ

Here are some of the most common questions about prediction markets.

1. What is a prediction market?

A prediction market is a regulated exchange where people trade financial contracts on the outcomes of real-world events, from sports results to election outcomes and economic data releases. Contract prices between 1 cent and 99 cents represent the probability of each outcome. Winning contracts pay $1.00 at settlement.

2. 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 current probability estimate for that outcome. When the event resolves, contracts on the correct outcome pay $1.00 and all others settle at $0. If your order settles at $0, you lose what you paid for the contracts plus applicable fees.

3. What is an event contract?

An event contract is a Yes/No financial instrument tied to a specific, verifiable outcome. If the event occurs, Yes contracts pay $1.00 and No contracts pay $0. If the event does not occur, No contracts pay $1.00 and Yes contracts pay $0. Any position that resolves incorrectly pays nothing at settlement, meaning you lose the amount you paid to enter the trade plus any applicable fees.

4. What can you trade on prediction markets?

Any event with a clear, verifiable outcome and a resolution date. On Fanatics Markets that means Sports (Pro Football, Pro Basketball, Baseball, Soccer, Hockey, College Football, College Basketball, and more), Economy (CPI, Fed rate decisions, GDP), Politics (elections, Senate control, Supreme Court decisions), and Culture (film and music award shows, entertainment outcomes).

5. How accurate are prediction markets?

In political and other markets, the combination of real financial stakes, aggregated information, and continuous price updates all contribute to produce price signals that continuously change as facts in the real world change.

6. What is Fanatics Markets?

Fanatics Markets is a CFTC-regulated platform where users can trade event contracts on sports, economy, politics, and culture. It operates through a shared Fanatics wallet, is available in the United States, and requires users to be 21 or older and in an eligible jurisdiction.

7. How do you make money on prediction markets?

You profit by buying contracts below the probability you believe is correct, then selling at a higher price or holding to settlement for a $1.00 payout. You may also profit by selling No contracts when you think an outcome is less likely than the current price implies. For a full walkthrough of the mechanics, see our guide on how to trade. There is no guarantee of profit, and you may lose the entire amount you invest.

8. Can you lose money on a prediction market trade?

You can lose the entire amount you paid for the contracts. If you buy 100 contracts at 35 cents each ($35.00 total), you could lose hat $35.00 plus entry fees if the event resolves against you.

9. What is the minimum amount to start trading?

The minimum trade on Fanatics Markets is one contract, with a minimum payout of $1.00. Actual cost depends on the contract price. For instance, a 20-cent contract costs 23 cents to enter (contract price plus the applicable per-contract fee). Only trade money you can afford to lose entirely.

10. How are prediction markets regulated in the United States?

Prediction markets in the U.S. operate under federal oversight by the Commodity Futures Trading Commission (CFTC) and the National Futures Association (NFA), the same regulatory framework that governs futures and derivatives markets. CFTC- and NFA-regulated platforms are subject to federal compliance requirements including customer fund protection, anti-money-laundering rules, and ongoing financial reporting obligations.