What is a prediction contract?

A contract tied to an outcome

A prediction contract is a financial contract whose payoff depends on a specified event. It is often called an event contract. A common binary design pays $1 if a condition is satisfied and $0 otherwise. Other designs exist, so the contract specifications always take priority over this simplified model.

What Yes and No mean

For a simple binary market, Yes pays when the stated condition is met; No pays when it is not. The two sides refer to the same written condition. Buying No on “above 3%” is a position on “3% or below,” assuming the rules define those as the only outcomes.

A headline such as “Inflation falls” is not enough to understand a position. You need the index, reference period, threshold, published data source, and treatment of revisions. Small wording differences can produce different contracts.

A worked example

Suppose an illustrative $1 contract costs 40¢. Buying 10 contracts costs $4 before fees. If your side wins at ordinary binary settlement, the payout is $10 and the profit is $6 before costs. If it loses, the payout is $0 and you lose the $4 purchase cost, plus any fees.

The $10 payout includes the money used to buy the contracts. It is not $10 of profit. All examples on this site are hypothetical, not live prices.

Trading before the result

You may be able to sell a position before settlement if trading is open and a buyer is available. Selling 10 contracts at 55¢ after buying them at 40¢ produces $1.50 of gross profit. The final event outcome then does not determine the payout of the position you have already sold.

A displayed portfolio value is an estimate. Executable prices, available quantity, fees, and trading restrictions determine what an actual exit would produce.

The market and the contract are different things

The contract defines what is paid. The market is where participants trade it. An app may provide access to an exchange operated by a different company. Understanding all three—the contract, exchange, and access provider—makes it easier to find the rules that apply to a position.