What are event contracts?

This document is for informational purposes only and does not constitute investment advice or a solicitation to trade. All trading involves risk and you could lose your entire investment.  The products and platform discussed herein are offered by Crypto.com | Derivatives  North America, a CFTC-regulated exchange and clearinghouse. Please see below for further disclosures. 

What are event contracts? 

Event contracts are ‘Yes/No’ trading products that allow you to speculate or hedge on the outcomes of real-world events, rather than traditional financial assets. Unlike conventional investing where you buy and physically hold assets like shares, bonds, real estate or crypto, event contracts offer a fundamentally different approach. 

In basic terms, you’re placing informed trades on whether a specific event will occur or not. These contracts are fundamentally linked to the prediction markets, which harness collective intelligence to forecast future outcomes. 

The nature of event contracts makes them accessible to traders of all experience levels. You predict whether an event will happen (Yes) or not (No) and then place your trade accordingly.

Event contracts let you put your money where your predictions are. If you think your sports team will win the championship or a new star player will hit a milestone? There’s often a market for that. 

Think you can predict the outcome of the next election, predict a politician’s future approval rating or predict a major policy shift? Political events can be traded too. Trading on future economic figures is also popular, from predicting the Federal Reserve’s next rate move to predicting GDP or jobs numbers before they land.

The appeal of event contracts lies in their non-traditional format. Instead of needing to analyze company financials or market fundamentals, traders focus on researching events, understanding probabilities and making predictions based on available information. Arguably, this democratizes trading by allowing users to attempt to profit from their knowledge in specific real-world domains.

Our Crypto.com Predict platform has made event contracts as accessible as possible, offering a beginner-friendly experience where you can browse available events, analyze the probability and execute trades based on your predictions once you have completed regulatory required onboarding.

Many analysts think that event contracts represent a paradigm shift from asset based investing to outcome based trading, where a market can be created around virtually any verifiable future event. This bridges the gap between the traditional financial markets and the prediction markets by transforming your insight into tradable instruments.

How do event contracts work?

While these instruments are more straightforward than many other financial products, it’s important to understand how to trade event contracts:

1. Event selection

You can start by choosing an event from our Crypto.com Predict marketplace, where we offer hundreds of real-world events to trade across dozens of categories. You can browse through sports events ranging from individual game outcomes to season long championships, political developments including election results and policy decisions and economic announcements such as Federal Reserve rate-setting decisions.

Each event will be clearly defined with specific terms and resolution criteria, ensuring there's no ambiguity about what constitutes a ‘Yes’ or a ‘No’ outcome. 

You’ll be able to filter events by category, popularity and time frame, making it straightforward to find contracts that match your interests and expertise. For example, a specific event might be ‘Will Team A win the next Super Bowl?’ or ‘Will the next Federal Reserve interest rate decision be a cut?’

Each contract includes detailed information about the event, its resolution date and the specific conditions that determine the outcome.

2. Yes/No outcomes and pricing

Every event contract operates on a straightforward system, where either the event happens (Yes) or it doesn't (No). 

The contract’s pricing mechanism will reflect the market's collective assessment of the event's likelihood. Contracts are typically priced between $0.01 and $0.99, where the price represents the implied probability of the event occurring. =

For example, a ‘Yes’ contract priced at $0.70 suggests that the market opinion is that there is a 70% chance the event will happen. Conversely, the corresponding ‘No’ contract would be priced at approximately $0.30, meaning that the market thinks there is a 30% chance it won’t happen. These prices will fluctuate in real-time based on trading activity or new information.

However, pricing in event contracts is not purely a reflection of statistical likelihood, because it’s also shaped by market sentiment and trading volume. 

You can consider how prediction markets work here.

In general, though, higher probability events cost more to buy but offer smaller potential returns, while lower probability events are cheaper but generate larger profits if successful.

3. Placing a trade

Executing a trade involves selecting your position (Yes or No) and determining your investment amount. Our platform will show you the current price and calculate your potential profit before you commit. For example, buying 100 ‘Yes’ contracts at $0.60 each will cost $60. 

You’ll also be able to see real-time pricing updates and order book information, allowing you to see market depth and any recent trading activity. 

You can also choose between market orders for immediate execution or limit orders to buy at a specific price (as a rule, a limit order will leave you with a  price you select but comes with a risk of missing the trade if the limit fails to be hit). 

Once you confirm your trade, the contracts will be added to your portfolio where you can monitor their performance and current market value.

4. Event resolution

After the event occurs, contracts are resolved based on the predetermined criteria and verified outcome. Correct contracts are worth $1 per contract, while losing contracts expire worthless. 

Using the previous example, if you bought 100 ‘Yes’ contracts at $0.60 and the event occurs, you’ll receive $100 (100 contracts × $1), yielding a $40 profit on your $60 investment (less fees). 

Resolution should happen after the event concludes, with potential profits processed automatically. We use official sources and clear resolution rules to determine the outcome, ensuring transparent settlements. 

However, on rare occasions, some events may require additional verification time, particularly when the result is uncertain (for example, where a political election result is subject to legal challenges or a recount).

Examples of event contracts in action 

Here are three real world scenarios showing how event contracts operate across different categories:

Economic example

‘Will the Federal Reserve raise interest rates at the next FOMC meeting?’ 

Leading up to a Federal Reserve meeting, let’s assume that this contract trades at $0.80 for ‘Yes’ and $0.20 for ‘No,’ indicating strong market expectations for a rate hike. Again, this pricing will shift depending on factors like economic data announcements, the central bank’s communications and inflation reports.

But if you disagree with the consensus and predict rates will remain unchanged or might even be cut, you could purchase 100 ‘No’ contracts at $0.20 each, costing you $20. If the Fed doesn’t hike rates, your contracts become worth $100, generating an $80 profit (less fees). 

This type of financial event, with clear outcomes and a broader market impact, makes it easier for newcomers with a baseline understanding of traditional assets to grasp how event contracts work.

Sports example

‘Will Team A win the Championship?’

Let’s say that during the playoff season this contract is priced at $0.25 for ‘Yes’ and $0.75 for ‘No,’ reflecting a 25% market probability. This pricing will fluctuate throughout the playoffs based on their performance, injuries and other sporting-specific factors.

If you predict that Team A has a better chance than the market consensus suggests, you could buy 200 ‘Yes’ contracts for $50 (200 × $0.25). If they go on to win the Championship, each contract pays out $1, returning you $200 in total, consisting of your initial $50 investment and a $150 profit (less fees).

However, if they lose, your contracts expire worthless and you’ve lost $50.

Political example

‘Will Candidate B win the Presidential election in 2028?’ 

Assuming a competitive election, this contract might be priced at $0.55 for ‘Yes’ and $0.45 for ‘No,’ suggesting a close contest. As campaigns develop, polling data comes out and debates get televised, the probability will likely shift significantly, either way.

But if you purchased 150 ‘Yes’ contracts at $0.55, your cost would be $82.50. If Candidate B then went on to win, you’ll receive $150 (150 × $1.00), earning a $67.50 profit (less fees). 

Together, these examples illustrate how event contracts transform knowledge and opinions into trading opportunities, where success potentially depends on accurately assessing probabilities and identifying market inefficiencies where your insights differ from collective sentiment. 

Get started with Crypto.com

1. Download the Crypto.com App
2. Explore the Predict section
3. Choose your first event contract
4. Start predicting with just $10

Benefits of trading event contracts 

Event contracts offer several advantages that make them attractive to all kinds of traders seeking alternatives to the traditional financial markets:

• Straightforward – The Yes/No structure is straightforward: predict whether an event will happen or not. This makes event contracts accessible to anyone who can follow news, sports or political developments, regardless of their trading experience.
• Low entry cost – Getting started requires minimal capital investment, with minimum trades on Crypto.com starting from as little as $1. This allows beginners to trade with measured financial risk, unlike many traditional investments.
• Real-time resolution – Unlike traditional investments where returns might take months or even years to generate substantial returns, event contracts resolve on a pre-defined date. And once resolved, potential profits are typically processed soon after.
• No need to hold assets – Event contracts do not require time-consuming portfolio management. You're not holding stocks that require monitoring the fundamentals or worrying about storage and custody, as you might with crypto. Each contract is self-contained with a clear expiration date and defined outcome.
• Trade with cash or crypto – We offer flexibility with funding methods, subject to terms and conditions, accepting both traditional fiat currency and cryptocurrencies. This helps to accommodate different user preferences and existing portfolio holdings.
• Capped downside risk – Unlike some trading products where you might face margin calls or losses exceeding your initial investment, event contracts have a built-in ‘safety’ mechanism. If you spend $50 on contracts, $50 is the absolute maximum you can lose, regardless of how wrong your prediction turns out to be.
  

Risks and considerations of event contracts

As with all financial products, event contracts come with several risks to consider:

• All-or-nothing outcomes – Event contracts operate on a system where you either generate a profit or lose your entire investment. There is no chance to be proven right eventually, as the contract ends after a single event.
• Event uncertainty – Real-world events can be unpredictable, with unexpected developments dramatically altering outcomes. Injuries in sports, surprise political announcements or sudden economic changes can shift probabilities. Additionally, market sentiment can change rapidly, creating price volatility that may not accurately reflect actual event probabilities.
• Misunderstanding of probabilities – Many traders misinterpret contract pricing and implied probabilities. A contract priced at $0.70 doesn't guarantee a 70% chance of success, instead reflecting current market sentiment, which may be incorrect. Understanding the difference between market pricing and actual probability requires a trader to do their research.

How event contracts compare to other forms of trading

Event contracts differ fundamentally from traditional trading instruments, offering a straightforward approach:

• Straightforwardness – event contracts operate on straightforward Yes/No outcomes, eliminating the need to understand technicalities like strike prices, expiration dates, the Greeks, time decay or volatility that plague traditional options and futures. While derivatives require pricing models and profit/loss calculations, event contracts offer straightforwardness.
• Low entry barrier – unlike traditional trading that often requires substantial capital (options representing 100 shares or futures requiring significant margins), event contracts allow minimal investment participation with a minimum of just $10. The pricing is straightforward; you pay what you're willing to risk and know your exact potential gain, without calculations.
• No leverage or margin risk – Event contracts avoid the amplified loss potential of leveraged trading. Unlike traditional derivatives that can trigger margin calls and losses exceeding your initial investment, your maximum loss is capped at your purchase price, providing built-in risk management without the risk of owing additional funds.
• Real world knowledge – Rather than speculating on abstract price movements or technical patterns, event contracts reward expertise on actual events, such as sports knowledge, political insight or economic understanding. This shifts trading from pure financial speculation to informed prediction based on research.
• Known risk profile – Before trading, you know exactly what you could lose (purchase amount) and gain (up to $1 minus what you paid per contract). However, wrong predictions result in total loss of investment, making this an all-or-nothing proposition that differs fundamentally from traditional investments with partial loss scenarios.
• Strategic risk management – The total loss potential requires disciplined risk management, s. Never invest more than what you can afford to lose completely, consider diversifying across multiple events.

Important information: This content is for informational purposes only and does not constitute financial advice. Event Contract markets are volatile and carry risk. Please consult a financial adviser before making investment decisions.

Prediction is an event contract that is a derivatives product offered by Crypto.com | Derivatives North America (CDNA), a CFTC-regulated exchange. Trading on CDNA involves risk and may not be appropriate for all. By trading you risk losing your cost to enter any transaction, including fees. You should carefully consider whether trading on CDNA is appropriate for you in light of your investment experience and financial resources. Any trading decisions you make are solely your responsibility and at your own risk.