KEY TAKEAWAYS

• A prediction market is an exchange where people trade contracts on the outcome of a future event. Each contract settles at $1 if the event happens and $0 if it doesn't.

• The price of a contract reads as a probability. A contract trading at 63 cents means the market, collectively, puts the chance of that outcome near 63%.

• Kalshi and Polymarket are the two largest venues today, and the category has grown from an academic experiment in 1988 into a market measured in billions of dollars a month.

• Prediction markets trade around the clock, but the banking system that funds them still keeps business hours. EDGE Markets builds the infrastructure that moves capital into these venues in real time. Fund only what you can afford to risk; deposit controls are available.

The short answer

A prediction market lets you buy or sell a contract tied to a yes-or-no question about the future. Will the Fed cut interest rates at the next Fed meeting? Will a storm make landfall in Florida? Will a film clear $100 million on its opening weekend? If you hold "Yes" and the answer is yes, each contract pays $1. If the answer is no, it pays nothing.

Because every contract ends at either $1 or $0, the price it trades at before then is the market's running estimate of how likely the outcome is. That single property is what makes prediction markets useful well beyond the people trading them. Economists, journalists and businesses watch the prices as a live forecast.

How does a prediction market work?

Every market starts with a question that has a clear, checkable answer and a defined resolution source. On Kalshi, contracts trade between 1 cent and 99 cents and pay $1 at settlement if the outcome occurs.

Take a contract asking whether a city will record more than 2 inches of rain this month. If "Yes" trades at 30 cents, a trader who buys 100 contracts pays $30. If it rains more than 2 inches, those contracts settle at $100. If it doesn't, they settle at zero and the trader loses the $30. The "No" side mirrors it: "No" at roughly 70 cents, paying $1 if the rain stays under 2 inches.

You don't have to hold to the end. Prices move as news arrives, and a position bought at 30 cents can be sold at 45 cents the next day if the forecast turns wetter. That is the part that makes a prediction market a market. Traders aren't taking a position against the venue; they are trading with each other, and the exchange matches buyers and sellers through an order book, the same way an equities exchange does.

Three pieces sit behind every trade:

• Exchange: Lists contracts, runs the order book, matches trades (example: Kalshi, Polymarket)

• Clearing and settlement: Holds collateral and pays out when the event resolves (example: Kalshi clears through its affiliate, Kalshi Klear)

• Funding rails: Moves money from a trader's bank or account onto the exchange and back (example: bank transfer, wire, debit card, crypto, real-time payment networks)

Most explainers stop at the first two. The third is where traders feel the most friction, and it is the part EDGE builds.

Why do prices work as probabilities?

A contract that pays $1 is worth, in theory, whatever the probability of that outcome is. If you think an event has a 70% chance of happening and "Yes" is trading at 55 cents, you would buy, because you are paying 55 cents for something you value at 70. If enough traders agree with you, they bid the price up toward 70. If you're wrong, someone with better information takes the other side.

Over time the price settles where the buyers and sellers with real money at stake roughly balance. That is why prediction-market prices often move before polls, analyst notes or official forecasts do. Participants are paid for being right, and they lose money for being wrong.

Prices aren't perfect. Thin markets with few traders can swing on a single large order, and a crowd can be confidently wrong. But on heavily traded questions, the price is one of the fastest public signals available.

Where did prediction markets come from?

The modern version started as a teaching tool. In 1988, economists at the University of Iowa launched the Iowa Electronic Markets, a small real-money market run for research and teaching, to test whether traders could forecast elections better than polls. It still runs today, on a deliberately small scale.

For decades that was roughly the scale of the category in the United States: academic markets, small caps, narrow questions. The shift came when venues built for retail and institutional traders arrived. Kalshi, founded in 2018 by Tarek Mansour and Luana Lopes Lara, became in 2020 the first U.S. exchange built specifically for event contracts to receive designation as a contract market from the Commodity Futures Trading Commission. Polymarket grew in parallel as a global venue that settles trades on blockchain infrastructure.

How big are prediction markets now?

Volume has grown fast enough that the numbers date quickly. Kalshi's monthly trading volume passed $17 billion in May 2026, up from about $660 million a year earlier. Bernstein analysts have projected the category could reach $1 trillion in annual volume by 2030.

Investors have priced that growth in. Kalshi raised $1 billion in 2026 at a $40 billion valuation, and Intercontinental Exchange, owner of the New York Stock Exchange, invested $2 billion in Polymarket.

What can you trade on a prediction market?

Almost anything with a clear, verifiable answer. Common categories include:

• Economics: inflation prints, jobs reports, interest-rate decisions

• Politics and elections: control of Congress, policy outcomes

• Sports: game results, season outcomes, player milestones. On Kalshi, sports contracts account for the majority of volume.

• Weather and climate: temperature highs, rainfall, hurricane landfall

• Culture: awards shows, box office, chart rankings

• Financial markets: index levels, commodity prices, crypto prices

Each venue decides which markets it lists and writes the rules for how each one resolves, including the source it will check.

Who trades on prediction markets?

The audience has widened well past hobbyists.

• Individual traders use them to express a view on news, sports or the economy, often with small positions.

• Businesses and hedgers use event contracts to offset a specific risk. A retailer running a promotion tied to a team's season, or a company exposed to an interest-rate decision, can buy a contract that pays out if the costly outcome happens.

• Market makers and trading firms quote prices on both sides and earn the spread. Their activity is what keeps markets liquid, and they are the participants most affected by how slowly money moves between venues.

• Institutions increasingly treat prediction-market prices as data, and investors have backed the venues heavily. That institutional interest is why the plumbing behind these markets now matters as much as the markets themselves.

How does money get into a prediction market?

This is the step most guides skip, and it is the one that decides whether your capital is in position when a market moves.

To trade, you first fund an account at the venue. The usual routes are a bank transfer, a debit card, a wire, or crypto. Each has a catch. Bank transfers handle size but take business days to settle. Debit cards are fast but capped low. Wires move large amounts but only clear during banking hours, so nothing moves on a Saturday night or a holiday. Crypto runs around the clock but needs conversion and carries its own fees.

Prediction markets never close, but the banking system behind them still keeps traditional banking hours. A trader who sees a market move on a Sunday can't wire money to it until Monday. A firm active on more than one venue has to keep a separate balance sitting at each one, which ties up capital that isn't doing anything. EDGE Markets calls that dead capital.

EDGE builds the capital movement layer underneath these venues. An EDGE Boost account is a special purpose debit account and Visa debit card built for regulated markets. You fund it on your bank's schedule, then move money from your EDGE Boost balance onto connected venues, including Kalshi, Polymarket and ProphetX, in real time and 24/7/365. Transfers to those prediction markets run up to millions per day. For a deeper look at why capital gets stranded across venues, see Real-Time Payments for Prediction Markets.

What are the risks?

Prediction markets carry real financial risk. You can lose the full amount you pay for a contract. Thin markets can be hard to exit at a fair price, and fees, while small per contract, add up with frequent trading. Resolution rules matter too: read how a market settles before you trade it, because the exact wording decides the outcome.

The practical safeguards are simple. Trade only what you can afford to lose, use the deposit limits and controls your accounts offer, and don't add money to recover a loss.