From contract mechanics to price discovery — the fundamentals of event trading.
A prediction market contract is a binary instrument. You buy a contract that pays out $1.00 (or €1.00) if a specific event occurs — and $0.00 if it doesn't. The price of the contract reflects the market's implied probability of the event happening.
If a contract trades at $0.65, the market implies a 65% probability. If you think the real probability is 80%, you buy — the gap between your estimate and the market price is your expected edge.
This is the fundamental difference from sports betting. A bookmaker sets the price and takes the other side of every trade — with a built-in margin (the vig). A prediction market uses an order book where buyers and sellers trade against each other. The price is set by supply and demand, not by the house.
Result: prediction market prices tend to be more efficient (closer to true probability) because they reflect collective intelligence rather than one bookmaker's risk model.
Prices move continuously as new information arrives. When a central bank hints at rate changes, the Fed rate contract adjusts within seconds. When a key player gets injured, the match contract reprices immediately. This is price discovery — the market aggregating all available information into a single number.
At the event outcome, contracts resolve to $1.00 (Yes) or $0.00 (No). Most platforms use automated oracles — data feeds that determine outcomes algorithmically. Some use human resolution committees for ambiguous cases.
You can engage with prediction markets at two levels:
No real money. You forecast probabilities and build reputation through accuracy (Brier Score) and simulated P&L. This is how Altus Alpha works. Free, legal everywhere, pure skill measurement.
Actual money on regulated platforms. Requires the same discipline as professional trading — position sizing (Kelly Criterion), expected value calculation, and risk management.