Prediction markets are regulated platforms where participants trade on the probability of real-world outcomes. Contracts pay $1.00 if the outcome occurs and expire worthless if it does not. This article explains how prediction markets work, covers the major platforms, and describes how tastytrade's event contracts give traders access to markets across commodities, crypto, economics, and financials.
What Are Prediction Markets?
Prediction markets are regulated platforms where participants trade on the probability of real-world outcomes. Instead of buying shares in a company or a commodity futures contract, you take a position on whether a specific event will or will not happen. If your forecast is correct at settlement, the contract pays out. If it is wrong, it expires worthless.
The core mechanic is straightforward: each contract represents a Yes or No position on a single defined outcome. A contract priced at $0.65 reflects the market's aggregate estimate that the event has approximately a 65% probability of occurring. That price updates in real time as contract holders react to new information flowing in—earnings releases, economic data, election polls—and the contract settles automatically at expiration.
Prediction markets have seen significant growth over the past several years, moving from academic curiosity to regulated financial instruments. The Commodity Futures Trading Commission (CFTC) now oversees certain event contract markets in the United States, and major trading platforms have introduced prediction market features alongside traditional derivatives. The result is a growing class of products that trade on outcomes ranging from federal funds rate decisions and CPI readings to cryptocurrency price thresholds and sporting events.
How Do Prediction Markets Work?
Each prediction market contract specifies an event, an outcome, and an expiration. When you trade, you take the Yes side (the event occurs) or the No side (it does not). At expiration, contracts settle automatically: a Yes contract pays $1.00 if the outcome is confirmed and $0.00 if it is not. The No side mirrors that—it pays $1.00 if the event does not occur.
The price you pay is your maximum possible loss. There is no leverage and no margin requirement on event contracts. If you pay $0.40 for a Yes contract and the event does not occur, you lose $0.40. If it does occur, you receive $1.00, for a gain of $0.60 per contract. Positions can be closed before expiration at the prevailing market price, which shifts as the probability of the outcome changes.
How Prices Form
Prices are set by participants in the market, not by an exchange or broker. Supply and demand for each side of the contract continuously updates the outcome’s estimated probability. This collective price discovery mechanism is the foundation of prediction markets' value as a forecasting tool — the price reflects the market's real-time estimate of an outcome's likelihood.
A contract at $0.90 on the day of a Federal Reserve meeting suggests 90% market confidence in a specific rate decision. A contract at $0.50 reflects genuine uncertainty. Neither the buyer nor seller is guaranteed to be correct—the value comes from having a view that differs from the prevailing market consensus and being right.
Settlement
Contracts settle automatically at expiration based on a verifiable, objective outcome:
-Winning contract: settles at $1.00 per contract, credited to your account
-Losing contract: settles at $0.00—the premium paid is the total loss
There is no ambiguity at settlement. The outcome is either confirmed or it is not, and account balances update in real time.
Prediction Markets on tastytrade
tastytrade offers event contracts through its Predict screen, giving traders access to yes/no contracts across five categories: commodities, crypto, U.S. economics, international economics, and financials. These contracts are available on the web platform and mobile app.
The available contract categories include:
Commodities: Predict price movements for energy and metals markets, including Crude Oil (WTI), Brent Crude, Natural Gas, Gold, Silver, and Copper.
Crypto: Trade on price outcomes for actively traded digital assets including Bitcoin (BTC), Ethereum (ETH), Solana (SOL), XRP, and Dogecoin (DOGE).
Economics (U.S.): Take positions on the results of major U.S. economic data releases and policy decisions: CPI and Core CPI, PCE Inflation, Nonfarm Payrolls, Unemployment Rate, FOMC Rate Decisions, GDP Growth, PPI, Retail Sales, and ISM Manufacturing and Services PMI.
Economics (International): Follow central bank decisions and inflation data from major global economies, including the ECB, Bank of England, and Bank of Japan.
Financials: Track key U.S. market indicators, including S&P 500 daily and hourly closes, Nasdaq-100, Dow Jones, Russell 2000, 2-Year and 10-Year Treasury Yields, FOMC rate decisions, VIX level, and the U.S. Dollar Index (DXY).
Each contract is tied to a specific event and time window. Some events have a single outcome (will X happen by Y date?). Others have multiple contracts across different price ranges or thresholds—for example, a Bitcoin price event might have separate contracts for several distinct price bands, each with its own probability.
Account Requirements
To trade event contracts on tastytrade, your account must meet the following requirements:
-Individual margin account or individual cash account
-Event contracts enabled on your account via Trading Preferences
Event contracts are not currently available in IRA accounts.
How to Enable Event Contracts
Sign in at my.tastytrade.com and navigate to Manage > My Accounts > Trading Preferences, then locate the Event Contracts section and click “Enable Kalshi Event Contracts.” The enablement flow consists of three steps: trading objective confirmation, industry affiliation disclosure, and final agreement acknowledgment. Once complete and approved, the Predict screen is active on your account.
Placing a Trade
On the web platform, navigate to the Predict tab. Use the category filters to narrow events, select an event and outcome, choose Yes or No, select your order type (Market, Dollar Amount, or Limit), enter your quantity, click Review Order, and then Submit Order.
Three order types are available:
Market: Fills at the best available price at the time of submission
Dollar Amount: Enter a dollar amount; the platform calculates the estimated contract quantity at the best available price
Limit: Specify a price and quantity; the order only fills if the market reaches that price before expiration. Keep in mind that partial fills can occur.
Event contracts are available on the web platform and mobile app. The desktop platform redirects to the web platform for event contract trading. Review commissions and fees before placing any order.
Risks and Limitations of Prediction Markets
Event contracts carry specific risks that differ from traditional options or futures.
Your maximum loss is the premium paid. There is no way to lose more than the cost of the contract. This structure is a significant constraint relative to leveraged products, but it also means there is no ability to earn more than $1.00 per contract regardless of conviction.
Liquidity varies by contract. High-profile economic data releases like CPI or FOMC decisions typically have active markets and tight spreads. Niche or longer-dated events may have wide spreads and limited order flow, making it difficult to enter or exit at favorable prices.
Settlement depends on verifiable outcomes. Contracts are written against objective, observable events—a specific CPI reading, a price threshold at a defined time, an index close. Ambiguously worded outcomes can create settlement uncertainty. Review the contract specifications before trading.
Regulatory eligibility may be limited. Event contract availability may be restricted in certain jurisdictions due to state or federal regulations. The platform will display eligibility status during the enablement flow.
Prediction markets do not guarantee forecast accuracy. Market prices reflect collective estimates, not certainties. A contract priced at $0.80 implies 80% market probability, not 80% certainty. The market can be wrong and often is on individual events.
For traders learning how to trade options or managing margin vs. cash accounts, event contracts offer a defined-risk alternative with a fixed maximum payout.
The Future of Prediction Markets
Prediction markets have expanded significantly since the CFTC first addressed their regulatory status. Trading volume on CFTC-regulated event contract venues grew substantially during the 2024 U.S. election cycle, and major brokerage platforms integrating event contracts indicates the category is moving from niche to mainstream.
Several factors are driving continued growth. The expansion of regulated venues reduces counterparty risk and increases participant confidence. Data-driven traders who already model economic outcomes, earnings surprises, and Fed policy decisions have a natural use for prediction market contracts as a complement to directional options and futures positions. The defined-risk structure also makes event contracts accessible to traders who want exposure to macroeconomic outcomes without taking on the leverage inherent in futures products.
The range of available contract categories is also expanding. As regulatory frameworks become more established, contract types across politics, technology, climate, and international markets are likely to grow.
FAQs
Prediction markets are regulated platforms where participants trade on the probability of real-world outcomes. Contracts take a Yes or No form on a single defined event. A winning contract settles at $1.00 per contract; a losing contract settles at $0.00. The price reflects the market's implied probability of the outcome occurring.
Participants take a Yes or No position on a defined outcome at a specific expiration. The contract price equals the market-implied probability—a contract at $0.65 implies approximately a 65% chance the event occurs. At expiration, contracts settle automatically based on whether the outcome is confirmed. Positions can be closed before expiration at the prevailing market price.
tastytrade offers event contracts across five categories: commodities (crude oil, gold, natural gas, and others), cryptocurrency (Bitcoin, Ethereum, XRP, and others), U.S. economics (CPI, FOMC decisions, nonfarm payrolls, and others), international economics (ECB, Bank of England, and Bank of Japan decisions), and financials (S&P 500, Nasdaq-100, Treasury yields, VIX, and others). Contracts are available on the web platform and mobile app.
Event contract trading is available to eligible individual cash or individual margin accounts. IRA accounts are not currently eligible. Event contracts must also be enabled via Trading Preferences in your account settings.
The maximum loss is limited to the premium you paid for the contract. There is no leverage and no margin requirement on event contracts. A Yes contract purchased for $0.40 can lose at most $0.40 if the outcome does not occur.
Trading prediction markets and event contracts is highly speculative and not suitable for all investors. You may lose 100% of your invested capital. These markets are offered through regulated exchanges and settled in your tastytrade brokerage account. Event contracts are only available in individual cash or margin accounts. Options involve risk and are not suitable for all investors. Futures trading is speculative and not suitable for all investors. tastytrade, Inc. ("tastytrade") does not provide investment, tax, or legal advice. Please read the full disclosures at tastytrade.com/disclosures before trading.