How do prediction market contracts pay out?

On Kalshi a binary contract settles at $1.00 if the outcome is yes and $0 if no, so its trading price in cents can be read as an implied probability.

Are prediction markets new?

No. The Iowa Electronic Markets have run since 1988 under CFTC staff relief. What is new is large, federally regulated exchanges offering them to the public, starting with Kalshi’s designation in 2020.

Guide

What is a prediction market?

An exchange for contracts on whether something will happen. Here is how they work, who regulates them and how the US market got here.

Reviewed Oct. 22, 2026 · Live figures update with our records · Sources are footnoted

The short answer

A prediction market lets people trade contracts on whether an event will happen. In US law these are event contracts: derivatives, usually with a yes-or-no payoff, tied to whether something occurs.¹ Kalshi’s pay $1 if the answer is yes and nothing if it is no.²

How the contracts work

The Third Circuit described an event contract as one that names an event with several possible outcomes, sets a payment for each, and expires on a date.³ Unlike most futures, they usually don’t depend on a market price at all.⁴ On Kalshi each binary contract settles at $1.00 for yes and $0 for no, which is why its price in cents can be read as an implied probability.² We don’t publish those prices.

You trade with other users, not against the house: the exchange matches orders and charges a fee.^2,5 That structure is at the heart of the gambling debate.

They have multiplied. The CFTC counted about five event contracts a year listed on regulated exchanges from 2006 to 2020, and 131 in 2021.¹

Who runs them

The exchanges are designated contract markets licensed by the CFTC, with trades cleared through a registered clearinghouse.^6,7 Brokers and apps (futures commission merchants and introducing brokers) bring customers to them.⁸ Read how that federal licence works.

Exchanges: Kalshi, Polymarket US, Gemini Predictions.
Apps and brokers: Robinhood, Crypto.com, Coinbase, Webull, DraftKings Predictions, FanDuel Predicts, Underdog, PrizePicks, Fanatics Markets.

22 of 51 jurisdictions have taken public action against them; see every state.

A short history

1974Congress creates the CFTC; it takes over futures oversight in April 1975.⁹
1988University of Iowa faculty start the Iowa Electronic Markets.¹⁰
1993CFTC staff give the Iowa markets a no-action letter, with small trader limits.⁴
2008The CFTC asks for public comment on how to regulate prediction markets.⁴
2012The CFTC blocks Nadex’s political contracts as gaming.¹
2014CFTC staff let a New Zealand university run PredictIt for research.¹¹
2020The CFTC designates Kalshi as a contract market.¹²
2022Polymarket pays a $1.4 million CFTC penalty and keeps blocking US users.¹³
2024A federal judge rules for Kalshi on election contracts.¹⁴
2025Kalshi lists sports contracts in January; Polymarket buys a licensed US exchange in July.^15,16
2026Federal appeals courts split: 1 for the platforms, 2 for the states. Follow the split.

Questions

What is a prediction market?: An exchange where people trade contracts on whether an event will happen. In the US these are event contracts, regulated by the CFTC when they trade on a designated contract market.
How do prediction market contracts pay out?: On Kalshi a binary contract settles at $1.00 if the outcome is yes and $0 if no, so its trading price in cents can be read as an implied probability.
Are prediction markets new?: No. The Iowa Electronic Markets have run since 1988 under CFTC staff relief. What is new is large, federally regulated exchanges offering them to the public, starting with Kalshi’s designation in 2020.