Prediction markets enable you to trade contracts based on the result of verifiable future occurrences, such as a significant sports match. By turning collective beliefs into live data, these incentive-driven hubs try to forecast certain results. Discover how this information aggregation works and how to trade event contracts with Crypto.com.
A prediction market is a specialized exchange where you can trade interests in future occurrences. These events can range from political results and economic indicators to cultural milestones and sports. Instead of trading company shares or physical goods, it allows you to trade ‘forecasts’.
When you participate in these markets, you buy or sell event contracts. This is a financial contract/derivative agreement where the payoff depends on the occurrence, non-occurrence or extent of a specific real-world event. Each contract is tied to a clearly defined question with a result that anyone can verify.
On many platforms, prices for these contracts can fluctuate between $0.01 and $0.99. Prices are determined by market supply and demand. As new information becomes available, traders adjust their positions, causing the contract price to move toward a consensus value.
Historical research supports the accuracy of these systems. Data from the Iowa Electronic Markets (IEM) shows that prediction markets were closer to final results than 964 separate polls approximately 74% of the time. This accuracy is particularly pronounced when forecasting more than 100 days in advance.
You can trade event contracts on Crypto.com to see this collective intelligence in action.
To understand how prediction markets work, you must look at the underlying structure of the contracts. These platforms take what people believe and turn those insights into live data points that update in real-time.
The most common structure for these instruments is the ‘Yes/No’ proposition. This offers a straightforward choice regarding an occurrence. For example, a contract might ask, "Will the Federal Reserve cut interest rates in its next meeting?" or "Will a specific team win the championship?"
Prediction market probabilities are expressed directly through the contract price. The current price represents the collective estimate of the probability of that event occurring.
If a ‘Yes’ contract for a specific event is trading at $0.65, the market is pricing a 65% probability of that occurrence. This transparency allows you to understand the crowd's consensus without complex survey weightings.
The contract structure is usually a simple Yes/No choice. If the predicted event occurs, the contract may resolve at a value of $1.00. If the event doesn’t occur, the contract resolves at $0.00, which may result in a total loss of the initial amount paid.
For example, if you buy a ‘Yes’ contract at $0.65 and your prediction matches the result, you’ll receive a $1.00 payout. This results in a profit of $0.35 per contract, minus any applicable fees. If the prediction is incorrect, the value drops to zero. This is a fundamental part of understanding options and derivatives.
One of the defining features of prediction markets is dynamic pricing. Prices adjust instantaneously as new information enters the public domain. A breaking news report, an economic print or a significant cultural development, for example, can cause the ‘implied probability’ to shift in seconds.
If you hold a contract and new data suggests your prediction has become more likely, the price of your shares will rise. This reflects a higher market-implied probability.
You aren’t required to hold a position until the event concludes. Prediction markets allow for early exits. If you bought a contract at $0.40 and the price rises to $0.70 due to a news break, you can sell your contract immediately to lock in a profit.
Similarly, if information emerges that makes your prediction less likely, you can sell your shares at the current market price to mitigate potential losses. This flexibility makes event contracts a highly responsive tool for managing risk around specific catalysts.
This continuous trading ensures that the market price always reflects the most up-to-date collective assessment. Unlike static polls that provide a snapshot of the past, these markets provide a real-time signal of what market participants believe is about to happen.
Read our event contract trading glossary for beginners
While they may appear similar at first glance, there are fundamental structural differences when comparing prediction markets to sports betting.
Traditional sports betting usually follows a ‘house model’. In this system, you bet against a centralized bookmaker who sets the odds. The bookmaker also builds a margin into those odds to ensure their own profit.
In contrast, prediction markets are peer-to-peer exchanges. You aren’t trading against a ‘house’, but against other market participants. The price is determined solely by the balance of supply and demand among the traders themselves.
In a peer-to-peer environment, if one person wants to buy a ‘Yes’ contract, another person must be willing to sell it. This transparency ensures that the price reflects the actual consensus of the participants rather than an arbitrary number set by a centralized entity.
The spread – the difference between the highest buy offer and the lowest sell offer – serves as an indicator of market efficiency. Narrow spreads generally signify high liquidity. This allows for easier entry and exit with minimal price friction for you.
Sportsbooks generally limit your options to athletic competitions. Prediction markets offer much broader flexibility and variety. You can trade event contracts on everything from inflation rates and GDP growth to election results and pop culture milestones.
Ready to call the result of the world's biggest events? With the Crypto.com App, you can trade prediction markets across sports, politics, financials and economics starting from just $10 per contract.
Getting started is straightforward. We offer multiple ways to fund your trades. You can use cash via bank transfers, or your existing crypto holdings on our App. This integration provides a seamless experience for those who already manage digital assets to start exploring our marketplace.
Our trading interface is designed for clarity. You can easily view current market prices, see the implied probabilities and calculate your potential profit before confirming a trade. Each event has clear resolution criteria to ensure there’s no ambiguity.
Payouts on our platform happen shortly after the result of an event is officially confirmed. This lets you access your funds quickly and, if you want to, prepare for your next trade.
In the United States, the regulatory landscape has evolved significantly over the last several years to provide clearer oversight for prediction platforms. The Commodity Futures Trading Commission (CFTC) is the primary federal regulator for prediction markets. Under the Commodity Exchange Act (CEA), these platforms are typically regulated as venues for trading derivatives and event contracts.
To accept US customers legally, a platform must register with the CFTC as a Designated Contract Market (DCM). Registered DCMs must comply with 23 core principles designed to ensure market integrity, transparency and protection for participants.
These principles include, but aren’t limited to:
The legal status of specific event types has also been clarified by the courts. In 2024, US courts ruled that the CFTC exceeded its authority by trying to block election-related contracts. The ruling held that elections don’t inherently constitute gaming under federal law.
Additionally, the 3rd Circuit Court of Appeals has held that federal law preempts state gambling laws for sports-related event contracts traded on a regulated DCM. This provides a more uniform federal framework for traders across the country.
It’s important to distinguish between authorized US platforms and unregulated offshore ones. Unregistered internet-based platforms may lack basic risk controls. The SEC has warned that such sites can be used for software manipulation, refusal to reimburse funds or identity theft.
In the United States, earnings from prediction platforms are generally subject to taxation, though the specific treatment can vary based on the platform's regulatory status.
Regulated event contracts traded on a DCM may qualify for Section 1256 tax treatment. This is often called the 60/40 rule. Under this code, 60% of your gains are taxed at the lower long-term capital gains rate and 40% are taxed at the short-term rate.
This 60/40 split applies regardless of how long you actually held the contract. For many traders, this can provide a significant tax advantage compared to ordinary income rates, especially for short-term tactical trades.
If a platform doesn’t qualify for Section 1256, gains might be classified as ordinary income. The specific classification depends on whether the platform provides formal tax reporting, such as Form 1099-B, which simplifies the preparation process.
Always keep detailed records of your trades, including purchase prices, sale prices and fees paid. These records are essential for calculating your net gain or loss for the year. Remember that capital losses can often be used to offset other gains.
Tax laws regarding digital assets and derivatives are subject to change. You should always consult with a certified tax professional to understand how prediction market participation affects your specific financial situation.
What is a prediction market?
A prediction market is an exchange where individuals trade contracts based on the results of future events. For example, a contract might ask, "Will the Federal Reserve cut interest rates in its next meeting?" Prices on these platforms reflect the collective belief of participants regarding the probability of an occurrence.
How is a prediction market different from sports betting?
Prediction markets use a peer-to-peer model where supply and demand set the price, allowing for dynamic entry and exit. Sports betting usually involves fixed odds set by a centralized bookmaker who takes a built-in margin.
Can I exit a prediction market contract early?
Yes, you can sell your event contracts before an occurrence is resolved. This allows you to lock in profits if the probability has moved in your favor or to limit losses if it has moved against you.
Are prediction markets legal in the US?
Yes – prediction markets can operate legally in the US when offered within the federal derivatives framework overseen by the CFTC. These markets are typically operated through registered Designated Contract Markets (DCMs), which are subject to ongoing regulatory oversight.
How much do I need to start trading event contracts?
On the Crypto.com App, you can begin trading in prediction markets with as little as $10 per contract.
What types of events can I trade on?
Traders can call results on a wide variety of global events. Common categories include political elections, economic reports like Federal Reserve interest rate decisions, major sports league results and cultural milestones.
How are prediction market earnings taxed?
Earnings are generally taxable in the US. Regulated contracts may qualify for Section 1256 treatment, which offers a favorable 60/40 tax split between long-term and short-term capital gains rates. Always consult a tax professional.
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Important information: This content is for informational purposes only and does not constitute financial advice. Cryptocurrency 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.
