Spain’s Dirección General de Ordenación del Juego (DGOJ) has announced that it has blocked prediction market operators Polymarket and Kalshi, arguing that both offered their...
Prediction Markets Explained: How Event Trading Really Works
As one of the fastest-growing sectors in finance, crypto, and online speculation, prediction markets aren’t niche experiments anymore. In April 2026 alone, the monthly notional trading volume of prediction platforms reached an all-time high of $29.8 billion, with further reports estimating that their annualized revenue rate could reach $10 billion by 2030.
So what are prediction markets? How do event contracts work? And why is everyone suddenly talking about them?
Table of Contents
- What are prediction markets?
- Why prediction markets exploded in 2026
- Top prediction market platforms in 2026
- How do prediction markets work?
- Types of prediction markets
- Are prediction markets legal?
- Prediction markets vs traditional polling vs gambling
- Biggest misconceptions about prediction markets
- Risks of prediction markets
- Prediction market trends in 2026
What are prediction markets?
Prediction markets are platforms where contracts are tied to the outcome of a specific future event, and each event contract settles at a fixed value depending on whether the event occurs or not.
Some prediction market questions are straightforward, but others are surprisingly unexpected, so let’s consider a few examples:
- Will the U.S. strike Iran by X date?
- Will a tech CEO step down before year-end?
- Will a movie about a plastic doll dominate the Oscars (again)?
And sometimes, the real question isn’t what will happen, it’s how much the market is willing to bet on it.
The typical fixed value of an event contract is often $1 if the event happens and $0 if it doesn’t. So, for example, if a contract trading at, say, $0.85 asks, “Will candidate X win the 2026 election?”, the market is pricing that outcome at an 85% probability.
Note that in prediction markets, you’re not trading stocks, commodities, or currencies; you’re trading the possibility of results.
Why prediction markets exploded in 2026
Prediction markets existed long before 2026, but there were some developments that pushed the industry into the mainstream almost overnight. Some of the biggest drivers behind the sector’s growth include:
- The 2026 FIFA World Cup and U.S. election cycle
- The expansion of regulated event contracts in the United States
- Major sportsbook operators entering the market
- Increased use of crypto infrastructure and stablecoins
- Social media attention around viral political and economic trades
- Institutional interest in prediction-based forecasting tools
At the same time, prediction markets became more visible outside of trading communities. Odds from prediction market platforms are now regularly referenced by analysts, media outlets, and even financial commentators as real-time public expectation metrics.
Top prediction market platforms in 2026
The top prediction market platforms differ in regulation, trading volume, and the types of event contracts they offer, and in 2026, there are several leading prediction markets; each, of course, with its own quirks. While there are many, only a select few are recognized just by their name or logo, and for the sake of keeping it short, below, we will cover today’s most renowned prediction platforms.
Kalshi
- Regulated by the CFTC
- Mostly focused on economics and politics
- Estimated $22 billion valuation
- Leading U.S.-regulated prediction platform with 60% market share
Polymarket
- Regulated by the CFTC as a DCM
- Decentralized blockchain-based prediction market
- Popular for political and geopolitical markets
- Estimated $15 billion valuation
The Kalshi and Polymarket pair controls 97% of the prediction market sector and generated over $5.025 billion in trading volume in 2025.
While we’re on the topic, an April 2026 report has found that only 2% of traders have ever gained more than $1,000 as a result of trading on Polymarket, and just 0.033% have earned over $100,000. This directly shows how uneven profitability on prediction markets is distributed.
DraftKings Predictions & FanDuel Predicts
If you know anything about gambling operators, then you most definitely know DraftKings and FanDuel, the two biggest sportsbooks in the U.S. Just recently, the pair has stepped into the prediction market industry as well, and the entrance of sportsbooks into prediction markets shows how closely the sectors are beginning to overlap. DraftKings Predictions launched in December 2025 in 38 U.S. states, with FanDuel following with the rollout of FanDuel Predicts just days later in all 50 U.S. states.
How do prediction markets work?
To understand how prediction markets work, two elements matter most: their contract structure and their pricing mechanism.
What contract structures do prediction markets have?
Most event contracts fall into the following three broad categories:
- Binary contracts – Two possible outcomes, Yes or No
- Multi-outcome contracts – Many possible results, each trading separately
- Scalar contracts – Connected to numerical ranges or measurable values
Each prediction market contract includes three things: a defined expiration date, a clear resolution source, and specific settlement criteria. This wording is not a minor detail or technical fine print. Markets depend on objective and verifiable outcomes, and any ambiguity can shake trust and reduce liquidity.
How are prediction market prices determined?
Prediction markets depend on supply and demand. When participants believe that an outcome is likely, they buy, but when it’s vice versa, they sell, and prices move accordingly.
This constant adjustment turns public expectations into tradable signals. As a result, the market price becomes a live probability estimate, determined not by a central authority but by participation. Every trade is essentially a vote supported by money.
Lastly, different prediction platforms use different liquidity models. Some run on traditional order books, where buyers and sellers trade directly with each other, while others use automated systems that continuously generate prices. Still, liquidity is what actually defines how stable a market feels. With low trading activity, prices can jump quickly and unpredictably, but in markets with higher participation, price movement is much smoother with tighter spreads, and the numbers tend to reflect more general views.
To summarize: Prediction markets turn future events into tradable contracts, where prices show the probability of outcomes based on real-time market activity.
Types of prediction markets
Prediction markets aren’t confined to one single category; they span across different sectors, each with its own participants and regulatory implications, and the broader the topic, the more diverse the participants shaping the outcome. Let’s take a look at the main categories.
Political prediction markets
Political prediction markets focus on elections, policy outcomes, and legislative decisions, and because of their public visibility, they often attract heavy media coverage and public interest. Remember when Trump topped the betting charts for the Nobel Peace Prize in 2025 or when Maduro’s trade on Polymarket triggered an insider trading bill? These and many more are cases of political event contracts, which tend to generate the highest activity during election cycles or when uncertainty and public attention peak.
Financial and economic markets
There are some prediction markets that concentrate on macroeconomic indicators and financial developments. Inflation, interest rates, GDP growth – the list can go on and on. Depending on the structure and management of financial and economic event contracts, some jurisdictions have even decided to start treating them as derivatives because they so closely resemble financial forecasting.
Sports and entertainment markets
At first glance, you might think, “This is just like sports betting!”, but we assure you, sports and entertainment prediction markets are structured very differently based on licensing and settlement systems.
Contracts may include:
- Championship winners
- Award show results
- Box office milestones
These markets are known for often drawing participants who are familiar with event-based speculation but operate under a different regulatory framework. With the FIFA World Cup 2026 approaching, we must brace ourselves, as projections show that more than $5 billion is expected to be traded in contracts connected to the tournament globally. Building on the momentum, FIFA has even signed a deal with ADI Predictstreet, making it the first-ever official prediction market partner.
Decentralized prediction markets
Decentralized prediction markets operate on blockchain infrastructure, with smart contracts automating execution and settlement, while digital assets serve as collateral. Although they remove single points of failure and intermediaries, decentralized event contracts introduce new considerations, namely oracle reliability, governance mechanisms, and jurisdictional compliance.
Decentralization changes operational mechanisms, not the main principle. The initial concept stays the same: pricing probabilities through market participation.
Are prediction markets legal?
The issue of the legality of prediction markets literally depends on the location you’re asking about. But before classifying them, regulators first evaluate whether an event contract qualifies as:
- A financial derivative
- A commodity contract
- A gambling product
- An unlicensed hybrid instrument
In the United States, prediction markets operate under the federal supervision of the Commodity Futures Trading Commission (CFTC). Prediction markets were made available in all 50 U.S. states in December 2024, but some states decided to fight back. Most recently, in early May, Minnesota became the first U.S. state to ban prediction markets, but it immediately faced backlash as the CFTC sued the state just days after.
In Europe, there is no unified approach, but most countries have taken a stricter position. As the International Association of Gaming Regulators reports, Germany, the Netherlands, France, Belgium, Poland, and Italy have all either blocked prediction markets or classified them as illegal gambling.
The UK, on the other hand, currently allows prediction markets under gambling regulation. The UK Gambling Commission published in February 2026 that prediction markets could operate legally in the country if they comply with licensing and consumer protection requirements.
Although cautiously, Canada has also started exploring regulated event contracts, and in March 2026, the Canadian Investment Regulatory Organization (CIRO) revealed that registered investment dealer members will be allowed to trade some forms of CFTC-regulated event contracts. However, the country doesn’t officially license any prediction market exchange.
Turning to Latin America, the region remains one of the most uncertain ones for prediction market regulation. Brazil initially showed signs of support after launching partnerships with Kalshi and the local B3 stock exchange, but the country has since issued 27 bans on prediction platforms. Colombia’s and Argentina’s iGaming markets have also imposed bans on Polymarket, while Mexico still allows the platforms to operate in a legal grey area.
Prediction markets vs traditional polling vs gambling
If we try to compare prediction markets, gambling, and traditional polling, we’ll notice that all three try to measure future outcomes in some way, but they operate very differently. Take a look at the table below:
| Feature | Prediction markets | Traditional polling | Gambling products |
| Based on | Tradable event contracts | Public opinion surveys | Fixed-odds betting |
| Pricing model | Dynamic market pricing | Statistical sampling | Odds set by bookmakers |
| Updates in real time | Yes | Usually delayed | Odds may periodically adjust |
| Financial exposure | Users trade positions | No financial risk | Users bet against the house |
| Influenced by market sentiment | Strongly | Indirectly | Controlled by bookmaker pricing |
| Accuracy mechanism | Incentivized participation | Sampling methodology | Odds balancing & risk management |
Biggest misconceptions about prediction markets
Prediction markets can feel confusing, even misleading. Are the prices just guesses? Can they really be trusted? These are all valid questions that come up often, and for good reason. They’re easy to misunderstand, so let’s clear up the most common misconceptions.
“Prices are random or based on guesswork” – The reality is that the prices in prediction markets reflect collective expectations. They move as new information becomes available in the market, like economic data, political developments, or breaking news, which makes them closer to real-time indicators than random guesses.
“Only experts can participate in prediction markets” – Depends. Some platforms do require verification or have restrictions, but many markets are designed to be accessible to the broader public. In fact, more diverse participation often improves pricing accuracy.
“Event trading is a method of making money” – Research suggests the opposite. Long-term high performance on prediction markets is uncommon, with data showing that the chance of consistently earning $5,000 in a month (which is lower than the average salary in the U.S.) is less than 1%.
“Prediction markets always accurately predict the future” – No, they don’t guarantee outcomes, because the prices show probability, not certainty. Also, accuracy relies heavily on liquidity, participation, and how much relevant information is available
“Low prices mean something won’t happen” – Actually, a low price doesn’t mean that something is impossible; it simply shows a lower perceived probability. Unexpected outcomes can still happen, especially if we’re talking about unstable or uncertain environments.
“Prediction markets eliminate bias” – Even though event contracts are more accurate than polls because of incentives, they still don’t eliminate bias, especially in cases where participants have emotional investments in the outcome.
Risks of prediction markets
Their growth is clear, but controversy and concerns around the risks of prediction markets are also growing. Some of the biggest risks include:
- Market manipulation
- Insider information risks
- Regulatory uncertainty
- Low liquidity in smaller markets
- High trader loss rates
- Ethical concerns around sensitive events
There are also arguments that prediction markets can encourage speculative behavior around political crises, conflicts, or public tragedies.
Prediction market trends in 2026
No one views prediction markets as just niche experiments anymore, and in 2026, there are multiple trends shaping the industry:
- Sportsbooks expanding into event contracts
- Increased regulatory pressure in the U.S. and Europe
- Growth of decentralized prediction markets
- Stablecoin-based settlement systems
- Institutional use of prediction data for forecasting
- Rising interest in political and geopolitical event trading
It’s also expected that artificial intelligence and predictive analytics will become increasingly connected to event contract pricing in the coming years. But one thing is for sure: as long as uncertainty exists, markets built around pricing it will keep attracting attention.
Prediction markets do not predict the future, but they do measure how strongly the present believes in it, and if you want even more insights into iGaming 2026, regulatory trends, and where the industry is heading next, join AffPapa for deeper analysis.
Prediction Markets: FAQs
What is a prediction market?
A prediction market is a platform where users can buy or sell contracts based on the outcomes of future events on topics like sports, politics, and economics.
What are event contracts in prediction markets?
Event contracts in prediction markets are tradable agreements that pay a fixed amount depending on whether an event occurs or not. They allow traders to buy or sell shares based on the “yes” or “no” future outcomes.
Are prediction markets legal?
Prediction markets are legal in the U.S. under the supervision of the CFTC, although some states are seeking to ban them. They’ve also recently been made legal in Brazil and the UK, but are banned in Germany, the Netherlands, New Zealand, and most of Asia.
What’s the difference between prediction markets and gambling?
The difference between prediction markets and gambling is that the former uses fluctuating event contract prices, while the latter has fixed odds. Also, prediction markets let users buy or sell positions before expiration, but gambling products set payouts in advance.
Are prediction markets accurate?
Prediction markets can be considered accurate forecasting tools, as their prices reflect collective expectations, but their accuracy depends on liquidity, participation levels, and the quality of available information.
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