The Commodity Futures Trading Commission (CFTC) has filed a lawsuit against the state of New Mexico in order to stop it from applying state gambling laws to federally...
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. But what exactly are prediction markets, and why are they attracting so much attention?
Table of Contents
Prediction markets: What are they & how they work
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.
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.
Each prediction market contract includes three things: a defined expiration date, a clear resolution source, and specific settlement criteria, and most event contracts fall into these 3 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
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.
Types of 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.
Financial & economic markets -Concentrate on macroeconomic indicators and financial developments. Inflation, interest rates, GDP growth – the list can go on and on. Some jurisdictions treat them as derivatives because they so closely resemble financial forecasting.
Sports & entertainment markets – These contracts include championship winners, award show results, and box office milestones. With the FIFA World Cup 2026 in process, it’s expected that over $5 billion is expected to be traded in contracts connected to the tournament globally.
Decentralized prediction markets – Operate on blockchain infrastructure, with smart contracts automating execution and settlement, while digital assets serve as collateral.
Top prediction markets in 2026
The growth of prediction markets hasn’t slowed down, but only a small number of platforms are now recognized just by their name or logo, making them clear winners. Below are the top prediction markets in 2026
Kalshi prediction market
Founded in 2018, Kalshi is now the biggest regulated prediction market platform in the United States with a 60% market share, offering users contracts connected to politics, economics, and other real-world outcomes. Regulated by the CFTC, Kalshi is probably the industry’s fastest-growing company, with a valuation of $22 billion reached during its March 2026 funding round.
Polymarket prediction market
In a constant race with Kalshi, Polymarket is the world’s biggest decentralized prediction market that was first launched in 2020. Just like its competitor, Polymarket is also regulated by the CFTC as a DCM and is built on blockchain infrastructure, allowing users to trade on everything from election and geopolitics to sports and entertainment. The platform currently holds a $15 billion valuation and generated $3.2 billion in monthly trading volume during May 2026. On the other hand, 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.
The Kalshi and Polymarket pair controls 97% of the prediction market sector and generated over $5.025 billion in trading volume in 2025.
Robinhood prediction market
Robinhood entered the prediction market space in 2025 through its event contracts offering, giving millions of retail investors access to markets connected to elections, economics, and news events. Unlike dedicated prediction market operators, Robinhood integrates event trading directly into its investment platform, with its market entry viewed as a sign that predictions are moving closer to traditional financial markets. Thanks to the ongoing FIFA World Cup 2026, the platform recorded an all-time high in daily trading, reaching 109 million trades and $39.3 million in trading volume in a single day.
How are prediction markets regulated?
The first thing lawmakers evaluate before deciding on prediction market regulations in their jurisdiction is whether an event contract qualifies as:
- A financial derivative
- A commodity contract
- A gambling product
- An unlicensed hybrid instrument
Based on this decision, the legal status and regulation of prediction markets vary from country to country. One of the most notable cases is the United States, which made event contracts available in all 50 states in 2024, under the federal supervision of the CFTC. Europe, on the other hand, has mostly taken a stricter approach. As reported by the International Association of Gaming Regulators, Germany, the Netherlands, France, Belgium, Poland, Spain, and Italy have all either blocked prediction markets or classified them as illegal gambling.
The most uncertain region regarding prediction market regulations still remains Latin America. 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.
Prediction market trends in 2026
Prediction markets are clearly becoming a broader industry that combines elements of trading, forecasting, and entertainment. In 2026, operators are focusing on expanding their market categories and making prediction products more accessible to wider audiences. The biggest trends in the industry today include:
- 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 in 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.
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 are the top prediction markets?
The top prediction markets based on popularity and trading volume include platforms like Kalshi, Polymarket, and Robinhood, which offer trades on politics, sports, economics, and other real-world events.
The Commodity Futures Trading Commission (CFTC) has granted permission to ProphetX to operate a prediction market, making it the first sports-native prediction platform in...
