Prediction Markets Explained: How Prediction Trading Works In Sports

Prediction markets are platforms where you trade contracts tied to real-world outcomes, with prices that move between $0 and $1 to reflect implied chances.

In this guide, you’ll learn what those contracts are, how orders fill and settle, the main market models you’ll see, and how this style of trading differs from placing a fixed sportsbook bet. We’ll also cover the sports markets people trade, a quick look at non-sports markets, what US access can look like, typical fees and limits, how exchanges and brokers differ, what to check for safety and disputes, and the key risks to manage.

What are prediction markets

Prediction markets are platforms where people trade simple contracts based on whether an event will happen. Each contract represents a specific outcome, and the current trading price reflects the market’s assessment of the probability of that outcome.

Some prediction markets use play money, which is helpful for learning but does not let you cash out. Real-money platforms require deposits, typically perform identity checks, and profits depend on both your fill price and fees. Always confirm whether a market is real-money before treating prices as tradable opportunities.

In most cases, contracts are priced from $0.00 to $1.00. A contract trading at $0.60 implies that the market believes there is roughly a 60% chance the outcome will occur. Traders can buy contracts when they think the market is undervaluing the probability, or sell contracts when they believe the market is overvaluing it.

For example, if a contract on “Team A wins” is trading at $0.40, a trader might buy if they believe Team A has a better than 40% chance of winning. If the price rises later to $0.55, the trader could sell for a profit without waiting for the final outcome.

Prediction markets are often described as a blend of sports betting and trading. They involve risk but also enable people to respond dynamically to changing conditions and information, much like in financial markets.

How do prediction markets work

Prediction trading works much like other trading platforms. You place orders to buy or sell contracts at specific prices. If another participant accepts your price, your trade fills. The price of the contract moves based on supply and demand, and the more people trade, the more fluid the market becomes.

Order books, bids, asks, and spreads

Most platforms use an order book. This means traders place buy orders (bids) and sell orders (asks), and the platform matches them when prices overlap. Some markets are highly liquid and have tight spreads, while others may have wider gaps between buy and sell prices.

A limit order sets your price (you might wait, but you control slippage). A market order prioritizes speed (you get filled immediately, but you pay the spread and may get worse fills).

Liquidity, slippage, and market depth

Liquidity plays a major role in how smooth trading feels. In high-liquidity markets, you can often enter and exit positions quickly without moving the price significantly. In low-liquidity markets, placing larger orders can shift prices and may take longer to fill.

I watch liquidity first. If a market is thin, prices can be jumpy, and your fills can get worse.

Before you trade, check the top-of-book spread, the visible size at your price, and whether recent volume suggests real liquidity rather than one-off prints.

Settlement and payouts

Once your order is filled, you own the contract. You paid the current price per contract (plus any fees), and that amount is what you have at risk.

For example, suppose you buy 1 contract priced at $0.45 on “Team A wins.” You pay $0.45 (ignoring fees for simplicity). When the market settles:

If you buy 10 contracts at $0.45, you pay $4.50 total. If the outcome happens, you receive $10.00 at settlement. If it does not happen, you receive $0.00.

Live, in-game trading

Many platforms permit trading during the event itself, particularly in sports. This creates opportunities but also introduces risk. Prices may change rapidly due to live updates, and traders need to monitor closely to avoid being caught in a fast-moving market.

Types of prediction markets

Most prediction markets differ in two main ways: how prices are set and how trades are executed (order book vs AMM), and how the platform is operated (exchange vs broker), which affects fees, transparency, and control.

An order book is a list of real buy and sell orders from other users. These platforms match traders directly and rely on market participants to provide liquidity. Traders place limit orders and receive fills only when another participant accepts those prices.

Another popular structure is an automated market maker (AMM). AMMs use formulas to set prices continuously, and they allow users to trade against the pool rather than waiting for another trader to match. This can improve liquidity in less popular markets, but spreads and pricing can vary depending on how much volume is being traded.

Separately from pricing, platforms may operate as exchanges or brokers. Exchanges usually show the order book, depth, and recent trades, while brokers often simplify the interface but provide less transparency into spreads and execution.

Some platforms run on blockchains, using smart contracts (code that automatically holds funds and settles outcomes) for custody and settlement. These setups improve transparency and remove some trust issues, but they can also bring higher network fees and slower confirmation times.

How are prediction markets different from sportsbooks

Prediction markets express odds through prices, while sportsbooks express odds through fixed betting lines. In a prediction market, you are trading a contract that represents a probability. In a sportsbook, you are placing a wager against the bookmaker’s odds.

For example, a contract trading at $0.60 implies a 60% probability. A sportsbook might offer odds such as -140, which implies approximately the same probability (about 58.3%).

For negative American odds, the implied probability is the absolute value of the odds divided by that number plus 100. For example, -140 becomes 140 divided by 140 plus 100, which is 140/240, or 58.3%.

Another key difference is that prediction markets allow you to enter and exit positions more fluidly. You can buy and sell contracts at different prices, and your profit depends on the difference between those prices. In sportsbooks, you are usually locked into your bet unless the sportsbook offers a cashout option.

If you bought a team at $0.45 pregame and they start hot, you can sell part of the position at $0.65 to lock in profit while keeping some upside.

Prediction trading can be more transparent because you can see bids, asks, and recent trades, which helps you spot wide spreads or thin liquidity before you enter. Since prices move based on trader demand, you can see how the market reacts to news and momentum in real time.

However, execution can vary more, especially in smaller markets. Sportsbooks typically offer faster execution and a more standardized experience.

Sports prediction markets overview

Most sports platforms offer contracts on game winners, futures, and player props, with liquidity typically strongest for major leagues and marquee matchups.

Common sports markets include:

Some platforms also allow live, in-game trading. These markets can move quickly and react to real-time momentum shifts, injuries, and game context. In-play markets can pause during reviews or timeouts, and price feeds may lag the broadcast by several seconds. That gap can widen spreads and make market orders risky immediately after a major play or injury.

Liquidity is usually deepest in major leagues and marquee games, so timing entries around news and stoppages matters more in smaller events.

Non-sports prediction markets

Beyond sports, the most common markets cover politics and economics (elections, rates, inflation), with clearer settlement rules and better liquidity than many niche categories.

Some non-sports markets include:

Some of these markets are highly active and have strong liquidity, especially around major elections or high-profile events. Others may be thinner and harder to trade efficiently.

Because these markets can involve more complex settlement criteria, it is especially important to read the market rules closely. Some outcomes depend on specific official sources, deadlines, or reporting standards.

Are prediction markets legal in the United States

It depends! Some prediction markets operate under CFTC-regulated frameworks, while many platforms and market types are restricted or unavailable depending on the state and the structure of the contracts.

The legality of prediction markets in the United States is complex. Some platforms operate under federal oversight, while others are subject to state-level regulations or face restrictions depending on how they structure their markets.

One reason the rules vary is that prediction markets get framed as gambling, financial trading, or research/forecasting tools, depending on the platform and contract type. Access can depend on your state, minimum age, and identity verification. Always check eligibility and market rules before depositing or placing your first trade.

The U.S. Commodity Futures Trading Commission (CFTC) regulates certain types of event contracts, particularly those linked to political outcomes or economic indicators. Some platforms, like Kalshi, have operated under federal frameworks, while others have faced challenges or legal uncertainty.

At the state level, prediction markets may overlap with sports betting regulations depending on how markets are categorized and whether real money is involved. Some states may treat certain markets similarly to gambling, while others may not.

Users should always check whether a platform is available in their state, and whether it requires identity verification or has restrictions based on location.

At the federal level, a few platforms run under specific approvals or no-action letters. Others fall under state-level gaming or betting rules. Because of this patchwork, what’s allowed often comes down to your state, the platform you choose, and the kind of markets you want to trade.

Fees, limits, and platform experience

Your all-in cost comes from fees plus spreads, so the two numbers to check first are the platform’s maker/taker schedule and the typical bid-ask spread on the markets you want to trade.

Common fee types

Some common fee types include:

Makers place limit orders that add liquidity, and they often pay lower fees (or get rebates). Takers fill existing orders for immediate execution, and they usually pay higher fees, which matters when spreads are already wide.

User experience and tools that prevent mistakes

The platform experience also plays a major role in how easy these markets are to use. A good interface makes it easier to monitor prices, place orders, and manage positions, helping you avoid costly misclicks and bad fills when the market moves quickly.

New traders should start small to get comfortable. Learning how orders fill, how spreads behave, and how quickly prices move can help avoid early errors.

Most platforms enforce position limits, which can tighten near the deadline. If you plan to trade larger sizes, check the limits early rather than waiting until the last hour.

The platform experience also matters. Good tools include:

These features help you place orders quickly and avoid mistakes when markets get busy.

Platforms, exchanges, and brokers

At the platform level, you will usually use either an exchange that matches users directly, or a broker that routes or packages markets. This affects fees, fills, and how much control you have.

How exchanges fill orders

Exchanges typically use an order book and allow traders to place limit and market orders directly. These platforms show bid and ask prices, depth, and volume, so you can choose your entry and exit more precisely.

In liquid markets, this can mean tighter pricing, but you still need to manage your own timing and use order types wisely to avoid overpaying.

How brokers route trades

Brokers often offer a simplified interface. They may route trades behind the scenes or set prices internally. This can be easier for beginners, but may come with wider spreads, less transparency, or fewer order tools.

Fees might appear as explicit commissions or be built into wider spreads.

How to compare all-in costs

Whether it’s an exchange or a broker, you usually pay via fees, spreads, or settlement charges, so compare the all-in cost before you trade.

Trust safety and dispute resolution

A safe platform makes settlement predictable: it publishes clear market rules, designates a dispute resolution authority, and specifies how disputes are handled.

Every market should have written rules explaining:

Some platforms use third-party sources to resolve events. Others use internal processes or community-driven resolution models, especially on blockchain platforms.

Dispute resolution usually involves submitting a support ticket or dispute claim. The platform reviews the market rules and settlement source and issues a final determination. Since disputes often involve edge cases, users should read these rules closely to understand exactly what they are trading.

Before you fund an account, check whether the platform publishes a status page, incident history, or transparency reporting, and save screenshots of the market rules and your position details in case the resolution criteria changes or becomes disputed.

Timelines vary by platform, but final decisions are typically issued after verification is complete. As a general rule, I like to avoid markets with unclear criteria or questionable sources.

Risks and responsible play

The biggest practical risks are low liquidity (wide spreads), slippage on market orders, and overreacting to news before the settlement rules and sources are clear.

Execution risks (liquidity, spreads, slippage)

Some key risks include:

Markets with low liquidity are especially risky because large orders can significantly shift prices. Traders may enter at one price but get filled at a worse price, especially if placing market orders.

During breaking news, such as injuries, lineup changes, or surprise announcements, liquidity can thin out and spreads widen. That increases slippage, and it can also lead to worse fills when you act quickly.

In thin markets, a few large orders can distort prices and create misleading signals in the book.

Information and rule risk (settlement criteria)

Another risk is that markets can move based on incomplete or misleading information. News spreads fast, and traders may overreact before details are confirmed.

Platforms can also change terms, market availability, or limits with little warning.

Behavior risk and responsible play

Responsible play matters. Users should set clear budgets, avoid chasing losses, and treat prediction markets as high-risk trading rather than a guaranteed-profit opportunity.

Personally, I step away for 10 minutes after a bad fill or a quick loss, then come back only if I still like the price.

It also helps to track your results and review the fees you pay over time.

You can use alerts or reminders to step away when the stakes feel too high, or emotions start to drive your decisions.

Glossary of core terms

As you spend time with these platforms, you’ll regularly encounter terms that come from both betting and financial trading. This glossary explains the main key concepts you’ll see across platforms.

Conclusion

Prediction markets can be a real alternative to sportsbooks if you prefer trading in and out of positions instead of placing fixed wagers.

If you want to try prediction trading for sports, start with liquid markets, use limit orders to control spreads and slippage, understand the settlement rules, and compare all-in costs (fees plus spread) before you scale up.

That said, these platforms are not risk-free. Liquidity varies widely, fees can add up, and markets can move rapidly in response to news, so trade cautiously until you feel comfortable.