One of the more common messages we get about prediction markets is some version of this: I understand the general idea, but I don't know what half these words mean, and at this point I feel dumb asking.
You're not dumb. This space stole its vocabulary from three places at once: financial exchanges, sportsbooks, and crypto. Nobody ever translated it. So new traders get dropped onto a trading screen full of confusing terms, lose money on something they didn't understand, and quietly leave.
That's the actual problem. In our user interviews, the people who quit almost never quit because their side lost. They quit because they got confused, felt foolish, and didn't come back. This is article is what we wish all of those people had before jumping into prediction markets.
What a prediction market is
A prediction market is an exchange where you buy and sell contracts tied to whether a specific event happens.
Every contract is worth exactly $1.00 if the event happens and $0.00 if it doesn't. That is the entire structure, and every other piece of jargon sits on top of it.
Because the payout is fixed at $1.00, the price of the contract is a probability. A contract trading at 62 cents means the market thinks there's a 62% chance the event happens. Prices generally run between 1 cent and 99 cents.
Every market has two sides, at least in theory. YES contracts pay $1.00 if the event happens. NO contracts pay $1.00 if it doesn't. On paper they add up to $1.00. At the prices you can actually trade at, they don't: if it costs 74 cents to buy YES, it costs 29 to buy NO, and that extra 3 cents is the spread.
Real world example
Say there's a market on whether the Fed cuts rates at its next meeting, and YES is trading at 30 cents.
You think that's too low. You buy 100 YES contracts at 30 cents each, so you've spent $30 not accounting for fees. That $30 is the most you can lose.
If the Fed cuts, your 100 contracts settle at $1.00 each and you collect $100. You made $70 on $30 risked.
If the Fed holds or rises, your contracts settle at $0.00 and you lose the $30.
Now the part that matters most: you do not have to wait for the meeting. Two weeks later a jobs report lands soft and the market reprices YES to 55 cents. You can sell your 100 contracts right then for $55 and book a $25 profit. The Fed hasn't done anything yet but you bought a probability and sold it higher.
That one feature, being able to exit before the event resolves, is the biggest mental shift for anyone coming from a sportsbook. Your bet slip is now a tradeable asset and you're not reliant on the site to determine if they want to offer you a cash out and at what price.
How this is different from a sportsbook
1. There is no house managing the lines
At a sportsbook, the book sets the line and takes the other side of your bet. You against them. They price the line so they profit over volume.
On a prediction market you're trading against other people. The platform runs the exchange and takes a fee. It doesn't have a position on your outcome and it doesn't care who wins. Prices move because buyers and sellers move them, not because a trading desk decided to shade a number. There are exceptions where the house operates its own trading arm that can take the other side but in true prediction markets, they will still be competing against other makers to offer the best price.
2. The price already is the probability
Sportsbooks quote you -110 or +250 and you have to convert in your head to figure out what the book thinks. Prediction markets quote you a number between 1 and 99 that already is the probability. You can view our odds tool to convert various betting formats to compare the price to prediction markets.
3. You can sell your position at any time
Covered above, but it's worth repeating because it changes strategy completely. At a sportsbook, once you place the bet you're locked in until the game ends or the bet resolves, unless the book offers you a cash out at a price they set in their favor. On an exchange you sell at whatever the market is paying at that moment.
4. Nobody is going to limit you for winning
If you've bet sports seriously, you know how this ends. You find an edge, you win for a few months, and then your max bet is $12.50 and your account gets restricted.
Exchanges don't work that way. There's no risk desk deciding you're too sharp. Some markets do cap how large a position you can hold, but those caps come out of the exchange rulebook, not out of someone watching your win rate.
5. And it isn't only sports
Prediction markets run on elections, Fed decisions, CPI prints, weather, box office numbers, awards shows, company announcements, and a long tail of things you'd never find at a sportsbook. If you know a lot about something that isn't a football game, there's probably a market for it.
Understanding the cost structure
At a sportsbook, the standard line is often -110 or on both sides. That price implies a 52.38% chance on each side, and both sides together add up to 104.76%. That extra 4.76% is the overround. Because it's charged on money wagered rather than money won, the book's theoretical hold works out to about 4.55%. In plain terms, you need to win more than 52.38% of your -110 bets just to break even. Parlays, which is where most of the industry's revenue actually comes from now, typically hold somewhere between 20% and 35%.
On a prediction market, you pay two things. First is the trading fee. Kalshi charges takers, meaning anyone who buys or sells at a price already sitting on the screen, 7% times the price times one minus the price, applied to your whole order and rounded up to the nearest cent. That formula peaks at a coin flip and shrinks as you move toward the edges. On 100 contracts at 50 cents it's $1.75 on $50 at risk, about 3.5%. On 100 contracts at 90 cents it's $0.63 on $90, about 0.7%. Polymarket rolled out taker fees of its own through early 2026 at rates that vary by category, and its US venue runs a similar formula. On both platforms, orders that sit on the book waiting to be filled cost less than orders that take a price already there. On a handful of markets they're free. On most of the big ones they're just cheaper.
Second is the spread, which is the gap between the best price someone will buy at and the best price someone will sell at. In a busy market that gap is a penny. In a quiet one it might be ten cents, and crossing it will cost you more than any fee.
So the honest version: at coin flip prices the cost advantage over a sportsbook is real but modest. The further a market gets from 50/50, the wider that gap opens, which is exactly where sportsbooks charge you the most. Heavy favorites, longshots, and season long futures are where the difference stops being academic and starts being the whole game.
The words everyone assumes you know
Contract (or share). One unit of a market. Pays $1.00 or $0.00.
YES / NO. The two sides of a market.
Orderbook. The live list of every price people are currently willing to buy and sell at, and how many contracts they want at each price. A list of standing offers, best prices at the top.
Bid and ask. The bid is the highest price a buyer is offering. The ask is the lowest price a seller is asking. If the bid is 58 and the ask is 61, you can sell instantly at 58 or buy instantly at 61.
Spread. The gap between bid and ask. Three cents in that example. Narrow spread means a healthy market. Wide spread means you're paying a lot just to get in and back out.
Market order. Buy or sell right now at whatever price is available. Fast, and you pay the spread.
Limit order. Name your price and wait. Cheaper, and it might never fill. And often lower fees.
Maker and taker. Place a limit order that sits in the book waiting and you're a maker: you made liquidity available. Take a price that's already sitting there and you're a taker. Platforms charge takers more, because makers are doing the exchange a favor. That's the whole thing. It's the most confusing pair of words in the space and it means nothing more than that.
Liquidity. How much size you can trade without moving the price. High liquidity means you get in and out at a fair price. Low liquidity means your own order pushes the market against you.
Volume. How much has traded, usually over some window. Volume and liquidity are related and are not the same thing. A market can show huge volume from a burst of activity yesterday and be a ghost town right now.
Open interest. The number of contracts currently held that haven't settled yet. A better read than volume on whether there's real money committed.
Position. What you currently hold. 100 YES contracts at an average price of 30 cents is a position.
Resolution (or settlement). Trading stops at the market's close time, and the outcome gets confirmed after that, sometimes an hour later, sometimes days if someone disputes it. When it's final, the winning side is worth $1.00 and the losing side expires worthless.
Resolution source. The specific source the platform will use to decide the outcome. This is the most overlooked line in any market. Read it before you trade. Two markets that sound identical can settle differently because one uses official league statistics and the other uses a wire service, or because one settles a day later than the other. That gap is called resolution risk, and it's the most common way beginners get burned on trades they were actually right about.
Expected value (EV). What a trade is worth on average if you could run it a thousand times. If you believe something is 40% likely and the contract costs 30 cents, that's positive EV. You can be right about EV and still lose the trade. That's normal.
Arbitrage. Buying an outcome cheaper on one platform than you can sell it for on another. YES at 57 cents here, 62 cents there, and that 5 cent gap is the trade. Real, and harder than it sounds once fees, tied up capital, and resolution differences get involved.
Hedging. Buying the other side of a position you already hold to lock in part of a gain or cut a loss. You can hedge at a sportsbook too, but it takes a second bet at whatever the new line is. Here it's one trade against your own position, at the market price, whenever you want.
Is any of this legal
Yes at the federal level, and the details matter.
Kalshi is a designated contract market, which means a federally licensed exchange, regulated by the CFTC, the same agency that oversees commodity futures. It has held that designation since November 2020 and clears its own trades through a registered clearinghouse. Polymarket serves US traders through a separate CFTC regulated exchange that launched in December 2025. Crypto.com offers CFTC regulated event contracts as well.
The unsettled part is sports. Several states argue that sports event contracts are sports betting under state law and have pushed back with cease and desist orders, lawsuits, and in a couple of cases criminal charges and outright bans. The platforms and the CFTC argue that federal commodities law preempts state gambling law. Courts have split, appeals are pending, the Supreme Court may end up taking it, and the CFTC ran a rulemaking on event contracts that closed for public comment in July 2026.
Prediction markets are federally regulated and legal. Which sports contracts you can actually access depends on your state and can change fast. Check availability where you live before you fund an account.
Where to start
Fund small. Pick one category you already know something about, whether that's the NFL, the Fed, or the weather in your city. Read the resolution source before every single trade. Use limit orders while you're learning, because the spread will teach you an expensive lesson otherwise. And watch how prices move for a couple of weeks before you decide you've found something.
The people who do well here aren't the ones who knew the vocabulary on day one. They're the ones who stuck around long enough to learn it. Everything above took me months to piece together out of documentation, Discord threads, and losing money.
You just got it in ten minutes. That's what PredictQ is for. Now go put it to work.
If there is anything else you have questions on, feel free to hop in the PredictQ Discord and ask away.