A prediction market is a trading venue where the commodity being bought and sold is the probability of a future event. Instead of trading stocks in a company, you're trading claims about whether something will happen.

The basic mechanism

Every market resolves to either YES (1) or NO (0). If you buy a YES share at $0.73, you're paying 73 cents for a contract that pays $1 if the event happens and $0 if it doesn't. The market price of that share — in this case, 73 cents — is the crowd's implied probability: 73%.

The price IS the probability. If a contract trades at $0.60, the market believes there's a 60% chance the event occurs. This is the core insight of prediction markets — prices aggregate information from all participants into a single number.

Why they beat polls

A poll asks people what they think. A prediction market asks people to stake money on what they think. That financial stake changes behavior in two important ways: people research before betting, and people update quickly when new information arrives because holding a wrong position is costly.

This is why Philip Tetlock's research on forecasting consistently finds that markets outperform expert panels. Experts can hold wrong views indefinitely without consequence. Market participants cannot.

Where the money comes from

On Polymarket, you trade USDC (a dollar-pegged stablecoin) on a smart contract on the Polygon blockchain. On Kalshi, you trade actual US dollars in a CFTC-regulated account. The difference matters for who can participate and what legal protections you have — but the underlying probability mechanism is identical.