What are prediction markets? How they work vs sports betting
Prediction markets trade $1 yes/no contracts on future events. How prices, fees and settlement work, how they differ from a sportsbook, and where US law stands.
A prediction market is an exchange where people buy and sell yes/no contracts on future events. Each contract pays $1 if the event happens and nothing if it does not, so a price of 30 cents reads as a 30% chance. Unlike a sportsbook, the platform matches buyers and sellers instead of taking the other side.
What are prediction markets?
Prediction markets are venues for trading event contracts, each built on a question that will have a clear answer by a known time, such as whether the Fed cuts rates at its next meeting. If you think yes, you buy Yes; if you think no, you buy No.
Because a winning contract is worth exactly $1, the price doubles as a forecast. In a June 2026 rule proposal, the CFTC described these prices as forecasts that may rapidly incorporate new information, on subjects from macroeconomics and politics to weather, culture and sport.
The format is not new: the Iowa Electronic Markets, a University of Iowa research project, has run under a CFTC staff no-action position since 1992. What changed is reach: regulated exchanges and brokerage apps now sell event contracts to the public, with sports at the center of the legal fight.
How prediction markets work
Traders buy and sell $1 yes/no contracts at prices that read as probabilities, the exchange takes a fee on each trade, and every contract settles under its written rules once the event is decided.
Event contracts and prices as probabilities
Every market is a pair. Yes and No together settle to $1, so if Yes trades at 30 cents, No trades near 70 cents. Prices typically run from 1 to 99 cents.
That price is the market's implied probability. For sports bettors, a 30-cent Yes implies about the same chance as +233 in American odds or 3.33 in decimal odds, before fees.
A worked example trade
Take a hypothetical market, "Will the home team win Sunday's game?", with Yes at $0.30. You buy 100 Yes contracts.
Cost: 100 × $0.30 = $30, plus a $1.47 fee under Kalshi's standard formula (below). Total: $31.47.
Home team wins: each contract pays $1, so you receive $100. Profit: $68.53.
Home team loses: the contracts expire at $0. Loss: $31.47.
You sell early: an injury on the other side moves Yes to $0.50 on Saturday. You sell for $50, pay a $1.75 fee and keep $48.25. Profit: $16.78, whatever happens on Sunday.
The trader on the other side effectively paid 70 cents per No, so together the two sides funded the $100 that settlement pays out.
Fees and how platforms earn
Exchange revenue comes from trading volume. Kalshi's published fee schedule sets the standard trading fee at 0.07 × contracts × price × (1 − price), rounded up. It peaks at 1.75 cents per contract when the price is 50 cents. As a share of the price, it equals 7% × (1 − price): 3.5% at 50 cents, 4.9% at 30 cents, 1.4% at 80 cents. Some markets carry their own rates.
Brokers add a layer. Robinhood offers event contracts through Robinhood Derivatives on CFTC-regulated partner exchanges and, per its annual report, earns a commission on each contract traded.
Liquidity and order books
Most platforms run an order book: buyers post bids, sellers post asks, and the gap between the best of each is the spread. Liquidity decides what the quoted price is worth. A Fed meeting or a national game draws tight spreads; in a thin niche market, the "probability" on screen can move as soon as you place an order.
Settlement and who decides the outcome
Settlement follows the contract's written rules. On a CFTC-regulated exchange, each contract is certified with terms naming the event, the cutoff time and the deciding source, such as an official data release or league result.
Polymarket's international platform uses UMA's optimistic oracle instead: someone proposes the outcome and posts a bond, anyone can dispute it, and disputes go to a vote. Read the rules first: vague wording can settle a market in a way you did not expect.
Prediction markets vs sports betting
A prediction market matches you with another trader and charges a fee; a sportsbook takes the other side of your bet and builds its margin into the odds, even when a sports event contract and a moneyline bet look identical on screen.
| Prediction market (exchange) | Sportsbook | |
|---|---|---|
| Other side of your position | Another trader | The sportsbook |
| Who sets the price | Orders in the book | The book's traders, plus margin |
| How the platform earns | Fee or commission per contract | Margin built into the odds (vig) |
| Leaving early | Sell at the market price | Cash out at the book's offer, if any |
| Customers who win a lot | More volume; the exchange holds no position | Can face stake limits; the book carries the result |
| What you can trade | Economics, politics, weather, culture, sports | Sports and markets the state allows |
| US regulator | CFTC, challenged by states on sports | State gaming regulator |
Neither model is free. A line of −110 on both sides implies 52.4% per side, 104.8% in total; the extra 4.8 points is the house margin, about 4.5% of the stake on a true coin flip. On an exchange, you pay the fee plus the spread, and Kalshi's standard fee at 50 cents is 3.5% of the price. The totals can be close; what differs is who earns the money and how visible it is.
Sports is where the two meet. The CFTC's June 2026 proposal treats contracts on overall outcomes, such as final scores, point spreads, win-loss results and season statistics, as unlikely to be against the public interest. It flags contracts on single in-game actions, such as the type of a specific pitch or whether a player commits a foul, as raising concerns. Those are the granular markets sportsbooks sell as microbetting.
Who runs prediction markets
Kalshi and Polymarket are the two main prediction market exchanges for US users, and Robinhood, Coinbase and FanDuel bring event contracts to their own customers.
Kalshi is a US exchange that the CFTC designated as a contract market in November 2020. The CFTC blocked its contracts on control of Congress in 2023; a federal court in Washington, D.C., vacated that order in September 2024, and the CFTC's appeal was dismissed in May 2025.
Polymarket runs two businesses. By its own disclosure, Polymarket US is operated by QCX LLC, a CFTC-regulated designated contract market, while the international platform is crypto-based and not regulated by the CFTC.
Distributors. Robinhood sells event contracts in its Prediction Markets Hub, and Coinbase and FanDuel offer their own prediction market products.
Are prediction markets legal in the US?
As of October 2026, prediction markets are legal at the federal level for contracts listed on CFTC-regulated exchanges. States are contesting them, sports contracts above all.
Federal. Event contracts on a designated contract market are regulated as derivatives under the Commodity Exchange Act. CFTC Rule 40.11 (17 CFR 40.11) bars exchanges from listing contracts that involve gaming and a few other activities, such as war or unlawful activity, as the Ninth Circuit explained in the Nevada case below. In February 2026 the CFTC withdrew a 2024 event-contracts proposal; in June 2026 it approved a new proposed rule that defines "gaming" and sets factors for deciding when a contract is contrary to the public interest. Check whether it has been finalized.
States. Gaming regulators in several states argue that a sports event contract is an unlicensed sports bet. The federal appeals courts have split:
New Jersey, Third Circuit, April 6, 2026 (KalshiEX v. Flaherty): ruled for Kalshi at the preliminary-injunction stage, so New Jersey cannot enforce its gambling law against Kalshi's sports contracts while the case continues.
Nevada, Ninth Circuit, August 28, 2026 (KalshiEX v. Assad): held Kalshi unlikely to win its federal preemption argument for sports contracts and upheld lifting its injunction, so Nevada can enforce its gaming laws against them. Election contracts went back to the trial court.
Supreme Court: New Jersey petitioned on September 2, 2026 (No. 26-299), and Kalshi's response is due November 9, 2026. As of October 28, 2026, the Court had not decided whether to hear the case.
New York has gone beyond sports. On July 31, 2026, its attorney general sued Kalshi under state gambling law, seeking to bar its contracts on sports, elections, culture and other events in or from the state. Kalshi moved the case to federal court; on August 11 the CFTC used emergency powers to order Kalshi to keep operating.
Whether a contract can be offered depends on the state and can change with one ruling. For casino, sportsbook and sweepstakes rules, see is online gambling legal in the US.
This is a summary of public court and regulatory documents, not legal advice.
What it means for affiliates and media buyers
Prediction markets are a new affiliate vertical where a user is worth their trading volume and Google Ads is largely closed, so it does not behave like a sportsbook program.
A user is worth their trading volume. Platforms earn from trading fees, so a referred user is worth what they trade. Before a referral or partner deal, ask how "fees" are defined, how long you earn on a user and how bonuses are treated, compare it with CPA vs RevShare vs Hybrid, and get the terms in writing.
Google Ads is effectively closed to affiliates. As of October 2026, Google Ads accepts prediction market ads only from certified advertisers, in the US meaning CFTC-authorized exchanges or NFA-authorized brokers, with Connecticut, Michigan, Nevada, New York and Ohio excluded. The policy names affiliate sites with related content or broker reviews as prohibited.
Expect gambling-level review elsewhere. Other ad platforms review these offers under gambling or financial-services rules; pitching them as "not gambling" to pass review is a compliance risk, not a workaround.
Demand follows the calendar. Interest peaks around elections, rate decisions and major games, so plan content and budgets around those dates.
FAQ
What is an example of a prediction market?
A common example of a prediction market is a contract on whether the Fed will cut rates at its next meeting. If Yes trades at 40 cents, traders put the chance at about 40%. Yes pays $1 if the cut happens and $0 if it does not. Kalshi lists macro markets of this kind.
How do prediction markets make money?
Prediction markets make money mostly through a fee on each trade, so revenue grows with volume rather than with customer losses. Brokers such as Robinhood add a commission per contract.
How are prediction markets different from gambling?
Mechanically, prediction markets differ from gambling because you trade against other people, prices come from orders and the platform takes a fee. Legally, the label depends on who decides: the CFTC regulates the exchanges, while several state regulators treat sports contracts as betting, a line as contested as sweepstakes vs social casinos.
Are any prediction markets legal in the US?
Yes, some prediction markets are legal in the US: Kalshi and Polymarket US operate as CFTC-regulated exchanges. Sports contracts are the open question: as of October 2026, federal appeals courts have split and New Jersey has asked the Supreme Court to decide.
Do people make money on prediction markets?
Some people make money on prediction markets, but traders as a group cannot. Every dollar a winner collects was put up by someone on the other side, and fees come out of every trade. To profit, you have to beat the price by more than the fees and spread.
Sources
Kalshi, fee schedule
Ninth Circuit, KalshiEX v. Assad, No. 25-7516 (August 28, 2026)
Supreme Court docket No. 26-299, Flaherty v. KalshiEX (Third Circuit No. 25-1922)
Google Ads policy, Prediction markets
Robinhood, event contracts overview
Robinhood Markets, Form 10-K for 2025
Polymarket, What is Polymarket
Polymarket docs, Resolution
Coinbase Help, Prediction markets
FanDuel Support, How do prediction markets work
