Basics·10 min read
How event contracts work
Price equals probability. A contract at 40¢ means the market thinks there's a 40% chance. Here's the full mechanic, with a Lakers walk-through.
Some links on this page are affiliate links. We may earn a commission if you sign up, at no cost to you. How we make money.
Keep reading
Keep the loop going
Sources & further reading
Every figure and legal claim on this page traces back to a primary source. These are the ones we checked, open them and verify us.
- CFTC: Commodity Futures Trading Commission
The federal regulator that authorizes and supervises every event-contract exchange we cover.
- CFTC designated contract markets registry
Official list of registered exchanges, where we verify a platform's DCM status.
- Commodity Exchange Act (7 U.S.C. § 1 et seq.)
The federal statute that preempts state gambling law for event contracts.
- National Council on Problem Gambling
Free, confidential help and self-assessment tools (1-800-522-4700).
Frequently asked questions
What is an event contract?
- An event contract is a binary financial instrument that resolves to $1 if a specified event occurs and $0 if it doesn't. They are regulated by the CFTC as commodities derivatives.
How is price related to probability?
- The price of a Yes contract, in cents, equals the market's implied probability of the event occurring as a percentage. A contract at 62¢ means the market thinks there's a 62% chance the event happens.
Can I sell my contract before the event resolves?
- Yes. On all major prediction market platforms, you can sell at any time at the current market price, locking in profit or limiting loss without waiting for resolution.
What fees do prediction markets charge?
- Most platforms charge a small per-contract fee, typically a fraction of a cent or 1-2% of the trade. This is dramatically lower than the 5-10% vig built into sportsbook lines.
How is this different from sportsbook betting?
- Sportsbooks set the price, build in margin, and pay only at resolution. Prediction markets are exchanges where prices are set by traders, fees are transparent, and you can exit any position at any time.
What happens if there's no liquidity in a market?
- Bid-ask spreads widen and you may not be able to enter or exit at favorable prices. Always check spread depth before trading thinly traded markets.
Can I lose more than I invested?
- No. Your maximum loss on a long event contract is the price you paid. A contract bought at 40¢ can fall at most to 0¢, capping your loss at 40¢ per contract.
What is the maximum trade size for an event contract?
- Maximum trade sizes vary by platform and market liquidity. On Kalshi, limits are often determined by the specific CFTC-approved contract filing, sometimes capping positions at 250,000 dollars for certain events. Polymarket generally has no hard ceiling, but large orders will experience significant price slippage if the order book is thin.
How does contract settlement work if an event is canceled?
- If an underlying event is canceled or does not occur by the expiration date, the platform rules usually dictate a refund of the initial investment or a settlement at 50 cents per share. Each platform maintains a rulebook that defines specific resolution triggers to ensure the settlement process is transparent and predictable.
Keep reading
Next steps
Ready to get started?
Kalshi
The regulatory leader.
Sign up at KalshiCertain limitations apply. The offer is available to new users only, subject to the terms and conditions at kalshi.com/tc/500. 21+ only. Restrictions and eligibility requirements apply. Event contract trading involves significant risk and is not appropriate for everyone. Please carefully consider if it is appropriate for you in light of your personal financial circumstances. Kalshi products are not available in all jurisdictions. See kalshi.com/regulatory for more information.