Regulated sportsbooks in the United States have hundreds, if not thousands, of betting markets available on a daily basis. Some extremely popular markets, however, are still not allowed by these mainstream betting sites. For instance, you cannot legally bet on U.S. political election odds in America. You also cannot bet on award shows like the Oscars or scripted events like WWE’s WrestleMania.
Prediction markets, however, do give users the opportunity to "bet" on these type of events and other exotic props. In this article, we will explain exactly what a prediction market is. We will also dive into how prediction markets differ from sports betting and how to use sites like Kalshi and Robinhood.
What are prediction markets?
A prediction market allows you to buy and sell shares on the outcome of a future event. Prediction markets are exchange-traded markets. Most prediction market websites allow users to "buy an outcome" for between 1 cent and $1.
Prediction market examples
For instance, one popular pop culture market in the fall of 2024 was, "Will the film 'Wicked' gross more than $500 million domestically by January 9, 2025?"
The outcome prices were:
- Yes: 27 cents
- No: 75 cents
In this example it is far more likely that Wicked will not gross more than $500 domestically by that date. A bet on "No" would cost the user more to buy, and would have a much smaller payout. It is basically the equivalent of betting "minus" odds against a sportsbook.
Another example in the fall of 2024 was "Will TikTok be banned in the US before May 2025?"
The outcome prices were:
- Yes: 45 cents
- No: 59 cents
The result of "No" is more likely and is priced as such. Betting on a "Yes" result here is more of a risk, but offers a better payout.
Prediction market websites will show you the average price for each market based on the amount you wager. It will also show the shares and potential return, much like a bet slip on a mainstream sports betting site.
Using the TikTok example, if you wagered $10 on "Yes" at 45 cents, the shares would be at 22.00 and you would get a potential return of $22.00 on that $10 "bet."
Wagering $10 on the "No" price of 58 cents would give the user 17.24 shares and a potential return of $17.24.
It is important to note that these prices are constantly in flux, much like the stock market. And much like the stock market, users can sell their shares.
What is the difference between sports betting and prediction markets?
There are many similarities between prediction markets and traditional sports betting markets. But it is important to be aware of the differences if you are used to one form and are just trying out the other.
Sports betting
When it comes to betting on sports at popular apps like DraftKings, FanDuel, or bet365, you are giving your money up-front to the sportsbook. The sportsbook sets the fixed odds.
Basic odds set by the sportsbook are point spreads, moneylines and totals. Futures odds, like Super Bowl odds, will often appear as follows:
Detroit Lions: +270
Kansas City Chiefs: +500
Philadelphia Eagles: +550
Let’s say you wanted to make a $10 bet on the Lions to win the Super Bowl at a sportsbook like DraftKings or FanDuel with that +270 price tag. You would bet and give that $10 to the sportsbook upfront. If your futures bet eventually won, the sportsbook would give you back the $10 you originally bet and you would "win" $27. So the payout here would be $37.
Below we will look at this same "bet" but in prediction market terms.
Prediction markets
When it comes to prediction markets, you are exchanging your money with other market participants - just like the stock market. You can buy shares with prices like 25 cents or 75 cents.
If you looked at NFL futures on a prediction market website it would list teams and the likelihood, percentage-wise, that each team would win the Super Bowl. It would look as follows:
- Detroit Lions: 21%
- Kansas City Chiefs: 16%
- Philadelphia Eagles: 15%
Let’s say we wanted to predict that the Lions would win it all. We would click on the Lions at 21% and then you would have the option to buy the outcome of "Yes" or "No."
A "Yes" contract would be priced at 20.7 cents while a "No" contract would be priced at 79.4 cents. A $10 "contract" on Yes would give you 48.31 shares and a potential return of $48.31.
With prediction markets, you could also choose to sell your shares before the Super Bowl.
How do prediction markets work?
The majority of prediction markets are a binary option market. These binary options feature yes or no outcome options. Contracts can be traded before the outcome is settled.
Prediction markets are titled as such because you must make a prediction on a future event. If you think it will happen, you buy. If at any point you think it won’t happen, you may opt to sell.
Price as probability
The price of a share displays what the crowd believes the probability of an event occurring is. If something is being traded at 33 cents, it indicates that there is a 33 percent chance of it potentially happening.
Liquidity and market makers
Prediction markets need market liquidity to function properly. There needs to be a high level of activity, with traders being able to buy or sell at any time with low transaction costs. Market makers stabilize the market and provide liquidity. A firm or individual can be a market maker. Market makers continuously quote both sides of a market and profit from the difference in the bid-ask spread.
Kalshi sports betting?
Kalshi is one of the U.S. leaders when it comes to offering prediction market contracts. It is highly popular for its pop culture and political election markets. Making predictions on the weather has also been highly popular at Kalshi.
It is likely that Kalshi will soon have many more sports markets available. In recent years, we have seen Kalshi have markets on head football coaches. There was a "Will Bill Belichick get a head coaching job before May?" market and a "Who will be the Chicago Bears next coach: Ben Johnson or Mike Vrabel?" market.
It is possible that Kalshi will soon offer prediction markets on actual games and futures, which are staples at traditional sportsbooks.
Robinhood sports betting?
Robinhood is a highly popular financial services company that allows users to trade stocks and cryptocurrency.
Robinhood CEO Vlad Tenev said in December 2024 that the company is "keenly looking into [sports betting]."
More than 500 million Presidential Election contracts were traded on Robinhood in the 2024 election between Donald Trump and Kamala Harris.
Strategies for using prediction markets effectively
There are no guarantees when it comes to making correct predictions on prediction markets. But there are simply strategies one can make to increase their chances of a winning prediction.
Look behind and ahead
Using past data is beneficial. When betting on NFL odds, for example, you will want to look at a team’s previous results. When betting a player prop, you will want to look at previous NFL stats.
But just as important, maybe more, is the ability to look ahead and anticipate how future results may be different (or the same) as those previous results.
With prediction markets, you will want to look on the horizon. When it comes the NFL, look at the team’s upcoming schedule. If there’s a potential loss on the horizon, maybe it’s time to sell now while that stock is still high.
The most popular prediction market this past year was the 2024 U.S. Presidential Election. Kamala Harris’ stock peaked following her one and only debate with Donald Trump in September. That would have been a great time to sell Harris stock considering there were no more debates between the two scheduled.
Trump’s stock began to climb again immediately following the debate between Vice Presidential candidates JD Vance and Tim Walz. The majority of pundits believed that Vance "won" the debate.
Prediction markets and betting markets were far more accurate than traditional polls from that early October VP debate to the Nov. 5 election day, as Trump had a strong probability of victory. Traditional polls were all over the place down the stretch, with many showing Harris as the favorite - and in some cases, a heavy favorite.
Looking at the calendar of scheduled events, or schedule of games in sports, can greatly help in anticipating when a stock might rise or fall.
Sell high, buy low
"Sell high, buy low" is the oldest and most well-known stock market strategy. It translates very well to prediction markets but it is important to remember a few things about this strategy.
Do not get overly emotional. There are going to be dips in your stock, sometimes daily or hourly. You obviously want to be wary of a dipping stock, but you definitely do not want to panic either.
The "sell high, buy low" strategy in a prediction market might be buying stock on an NFL team coming off a loss. For instance, the Detroit Lions were early December favorites to win the Super Bowl. Detroit then lost a wild 48-42 game to the Bills, who also happen to be an elite team. Following the loss to Buffalo, you could get Detroit to win the Super Bowl around 17 cents at prediction markets. Detroit to not win the Super Bowl was listed around 83 cents. Buying the Lions to win the Super Bowl at this point would net a $58.82 return on a $10 investment.
The benefits and risks of using prediction markets
Just with sports betting, there are numerous benefits and risks when it comes to using prediction markets. Here are a few:
Benefit: Potential to make money
The obvious benefit with using predictions markets is that you can make some cash if you make some savvy investments.
Benefit: Enjoyment of watching things unfold
Having some skin in the game is often thrilling. Investing/betting with a prediction market can increase your enjoyment of watching sports or watching certain situations unfold.
Benefit: Convenience
Gone are the days of having to meet up with a bookie in an alleyway to place a bet. And there is no longer a need to use shady offshore betting sites. You can now place bets or make prediction market investments from the comfort of your couch. Sites like Kalshi and Robinhood have easy-to-use apps.
Risk: Potential to lose money and potential for addiction
We encourage prediction market users to do as much research on a topic as possible before making an investment. But like with traditional sports betting, sometimes you can be flat-out wrong on a bet despite putting in the work.
The risks of running into financial issues are very real when using these sites. Becoming a betting addict can negatively impact your personal life, as well as your bank account. Be sure to use betting sites and prediction market sites responsibly.
Risk: Time consuming
It may take you a while to understand how prediction markets work. It may also take you a while to do research on a certain topic before making an investment/placing a bet. Using these sites can be time consuming and can take focus away from your job and personal life.
Risk: Ethical issues
There are some prediction market sites that have certain markets that raise ethical issues. A site like Polymarket, for example, has markets on war, like "Will Israel invade Syria?" It also has a market on "Will Jay-Z face criminal charges?"
Betting on such serious matters is morally wrong, but people do engage with these markets.
The future of prediction markets
The popularity of prediction markets is likely to grow in the coming months and years.
Sports bettors who are looking for non-traditional markets may turn to prediction markets to have a stake in things like the U.S. Presidential election, niche sports and/or niche props.
Prediction markets gained a considerable amount of trust in this past U.S. election because they proved to be more accurate than traditional polls.
Prediction markets have the appeal of offering something new to users and they are becoming more trusted by the day. That combination is the main reason why the future of prediction markets looks bright.
