Prediction markets are platforms where traders bet on the likelihood of future events. These markets aggregate information and predict probable outcomes through instant price changes.
Definition of Prediction Markets
Prediction markets are exchanges where traders buy and sell contingent claims that will pay $1 if a specified event occurs and $0 otherwise. This allows for market-implied probabilities to be instantly reflected through asset prices. They are used to forecast elections, macro data releases, sports outcomes, and corporate KPIs.
Technology and Mechanisms
On prediction markets, assets are primarily represented by binary contracts. For instance, is the contract set to assess whether U.S. GDP will grow more than 2% in Q3 2025? Traders can bet in $0.01 increments, with a successful outcome leading to a payout of $1. Modern platforms like Polymarket utilize automated market maker models, ensuring instant price updates and reduced risks for participants.
Key Players and Their Differentiation
Several major players distinguish the prediction market space. Polymarket is a crypto-native platform operating on an automated market maker basis. Kalshi is a fully regulated U.S. exchange with its own production standards. Manifold offers a platform for play-money trading. Each uses different mechanisms and strategies to attract traders and ensure liquidity.
Prediction markets demonstrate the ability to turn information into tradeable assets, potentially becoming an important tool across various sectors. Their development on blockchain technology suggests new opportunities for real-time forecasting and decision-making.
