Updated 2026-09-22
Key takeaways
- A prediction-market contract pays according to written event rules, not the headline or the trader’s intended meaning.
- A 70-cent Yes share is a rough implied probability before fees and friction, not an objective 70% forecast.
- Resolution source, timing, liquidity, access, custody, and exit price are separate risks.
Quick answer
How Prediction Markets Work: Odds & Resolution is a HittinCorners guide to how prediction markets work in plain English: read contract prices, compare resolution rules, calculate the real exit risk, and choose between Polymarket and Kalshi. It is written for readers deciding what to check or do next, not as a guarantee of returns, safety, or protocol performance. Use the page's dated evidence and linked primary documentation to verify details that can change before acting. Source: HittinCorners editorial analysis, 2026.
Last updated: September 2026 — Answer framing and editorial context reviewed; dated product facts remain subject to the linked primary source.
Contents
A prediction market is an exchange for event contracts: the contract pays according to a written outcome rule, while its price acts as a rough probability estimate before fees and friction. The safest way to use one is to read the settlement rule first, then compare the executable price and exit path.
What is a prediction-market contract?
A prediction-market contract is a position on a defined real-world outcome. It should identify the event, time window, resolution source, determination time, edge cases, payout, and fees. A “Yes” share at $0.70 may pay $1 if the written condition is met and become worthless if it is not, but the title alone does not define the condition.
How do prediction-market prices work?
If a Yes share trades at $0.70 and pays $1 at settlement, the market is roughly expressing a 70% implied probability before fees. That number is only useful when the market is liquid and the contract is clear. Spread, order size, time remaining, trader preferences, and the possibility of delayed or disputed resolution all change the trade.
Treat the price as a starting estimate. Ask what information the market may be missing, whether the event can be influenced, and whether you can exit at a reasonable price before settlement.
How does a prediction market resolve a trade?
Resolution is the process that turns an open contract into a final payout. Polymarket documents an UMA Optimistic Oracle process tied to predefined market rules. Kalshi documents a market-specific verification source and determination criteria. Other venues may use an operator, oracle, data provider, or adjudication process.
The resolution source matters because “the event happened” and “the named source confirms the event under the written rule” are different statements. Read the rule, source, cutoff, and dispute process before trusting the probability.
How to compare Polymarket and Kalshi
Polymarket is a crypto-native, wallet-based event-market surface. Kalshi is an account-based event-contract exchange with its own eligibility, market rules, and official-source settlement process. Neither model is automatically safer for every reader.
Compare the exact contract on each venue by wording, source, close time, determination time, depth, fees, access, custody, and withdrawal. Use the Polymarket review, Kalshi review, and head-to-head comparison.
What risks do prediction markets have?
- Wording risk: the title may omit the rule that controls settlement.
- Resolution risk: the official source can be delayed, revised, or interpreted through a dispute process.
- Liquidity risk: a correct thesis may still produce a poor exit price.
- Access risk: eligibility and market availability vary by jurisdiction.
- Custody risk: wallets, accounts, bridges, contracts, and withdrawals can fail separately from the event.
- Information risk: market participants may have better information or incentives to influence the outcome.
How to use a prediction market for the first time
- Choose one event and define the outcome in plain English.
- Read the full contract rules and write down the source and determination time.
- Check spread, depth, fees, and the price available for your actual order size.
- Confirm access, deposit, withdrawal, and settlement details.
- Decide your exit before entering: trade out, hold to settlement, or accept the maximum loss.
If you cannot explain the settlement condition without reopening the page, keep researching. Move to the best prediction-market shortlist only after the mechanics are clear.
Prediction markets versus perps and options
Prediction markets ask whether an event condition resolves true. Perps express continuous leveraged price exposure without a fixed expiry. Options express a payoff around a strike, premium, and expiry. Choose the product that matches the uncertainty you are actually trying to trade.
What to decide before entering a prediction market
Prediction markets are probability-shaped contracts, not crystal balls. Read the rule that decides the payout, verify the source and timing, price the exit, and only then compare venues.
Frequently asked
Does a 70-cent prediction-market contract mean a 70% chance?
It is a rough implied probability before fees and market friction, not an objective truth. Thin liquidity, spread, risk preferences, and ambiguous wording can make the displayed price a poor forecast.
How do prediction markets settle?
Each market defines an outcome, event window, resolution source, determination time, and settlement process. Read those rules before trading because the market title may not describe every edge case.
What should I compare between prediction-market platforms?
Compare the contract wording, market depth, fees, resolution source, dispute handling, custody, withdrawal route, jurisdiction, and exact product structure—not just the number of markets listed.