How does a prediction market contract actually pay out?

Each contract settles at $1.00 if the stated event happens and $0.00 if it does not. If you buy a Yes contract at 62 cents and the event occurs, you receive $1.00, a gain of 38 cents per contract before fees. If it does not occur, you lose the 62 cents you paid. The price is therefore capped between zero and one dollar, which is what makes it readable as a probability.

Does a 70% price mean the event will happen?

No. It means the market is pricing roughly a 70% chance. Events priced at 70% should fail about three times in ten. A market is well calibrated if, across many contracts priced near 70%, the outcome occurs close to 70% of the time — not if every 70% favourite wins.

Are election prediction markets legal in the United States?

Election contracts on a CFTC-regulated designated contract market are legal at the federal level. A federal district court ruled in September 2024 that exchanges may list election-outcome contracts, and the D.C. Circuit declined to stay that ruling in October 2024. The CFTC's proposed event-contract rule published June 10, 2026 treats election-result contracts as outside the gambling category, while proposing to bar contracts on assassinations, terrorism and armed conflict.

Why do prediction market prices differ from polling averages?

They are measuring different things. A poll estimates current stated voting intention with a margin of error; a market price aggregates money-weighted forecasts of the final outcome, incorporating turnout models, legal risk, and whatever traders think polls are getting wrong. Divergence is information, not necessarily error.

Can these markets be manipulated?

They can be moved, at least briefly. A trader willing to lose money can push a price away from consensus, and reporting in 2026 has highlighted thin-market vulnerability on both Kalshi and Polymarket. Manipulation is expensive and self-correcting in deep markets, but in a thin contract with little volume a headline price can be misleading. Check volume and open interest before treating a price as a forecast.

What fees should I expect?

Kalshi charges a trading fee that scales with how close the price is to 50 cents, which is where contracts have the most variance. Polymarket's cost structure differs and settlement happens on-chain. Fees matter disproportionately here because the maximum possible gain on a contract is one dollar, so a few cents of cost is a large share of edge.

How do election prediction markets work?

Explainer · Updated August 10, 2026 · 18+ · Not betting advice · By BetG8 Editorial · Prediction Markets

Short answer: You buy a contract that pays exactly $1.00 if an outcome happens and $0.00 if it does not. Because the payout is fixed, the price can only sit between zero and one dollar — and that price reads directly as the market's estimated probability. A contract trading at 63 cents is the market saying "about 63%."

Election prediction markets look complicated and are not. Strip away the interface and there is one instrument: a binary contract with a fixed settlement value. Everything else — the charts, the percentages on cable news, the arguments about whether markets beat polls — follows from that single mechanic.

The mechanic, in one table

Suppose a contract asks whether a particular party will control the Senate after the next election, and Yes is trading at 63 cents.

You do this	Cost now	If event happens	If it does not
Buy 1 Yes contract	$0.63	Receive $1.00 (+$0.37)	Receive $0.00 (−$0.63)
Buy 1 No contract	$0.37	Receive $0.00 (−$0.37)	Receive $1.00 (+$0.63)
Sell your Yes at 71c later	—	+$0.08 per contract, regardless of the eventual result

Two things fall out of this. First, Yes and No must sum to roughly $1.00, or there is a riskless arbitrage. Second, you never have to wait for the election. Most volume comes from traders closing positions early at a better price, exactly as they would with any other security.

Why the price is a probability

The expected value of a Yes contract is simply the probability of the event times one dollar. A risk-neutral trader will buy whenever the price sits below their estimated probability and sell when it sits above. Competition between those traders pushes the price toward the market's collective estimate. That is the whole theoretical case for prediction markets: participants are paid to be right and punished for being wrong, so stated confidence carries a cost in a way that a survey response or a pundit's forecast does not.

The important discipline is reading calibration correctly. If a market says 70%, you should expect that outcome to fail roughly three times in ten. A favourite losing is not evidence the market was broken. A market is only wrong if, across hundreds of contracts priced near 70%, outcomes land far from 70%.

Where they trade, and under what rules

The two names that matter in the United States are Kalshi, which operates as a CFTC-registered designated contract market, and Polymarket, which grew up offshore and on-chain with a different regulatory posture. The academic ancestor is the Iowa Electronic Markets, which ran small-stakes election contracts under a no-action letter for decades and supplied much of the early evidence that these markets forecast well.

The federal legal position on election contracts specifically was settled in Kalshi's favour. In September 2024 a federal district court held that designated contract markets may list contracts tied to election outcomes, rejecting the CFTC's broader reading of its own gaming rules. The D.C. Circuit declined to stay that ruling that October, and the contracts went live. The CFTC's proposed event-contract rule published on June 10, 2026 continues to treat election-result contracts as something other than gambling, while proposing to prohibit contracts on assassinations, terrorism and armed conflict.

None of that resolves the separate, louder fight over sports event contracts, where states have sued repeatedly and outcomes now vary by jurisdiction. We track that state by state in our 50-state Kalshi legality tracker.

What the price does not tell you

Three cautions are worth internalising before you read any market number as truth.

Volume matters more than price. A 78% reading in a contract with a few thousand dollars of open interest is closer to one person's opinion than to a forecast. Check depth first.

Prices can be pushed. Reporting through 2026 has examined how thin contracts on both major venues can be moved by a determined trader willing to absorb losses. Deep markets correct this quickly because the mispricing is free money for everyone else; shallow ones may not correct before a headline is written.

Fees eat a fixed pie. Maximum gross profit on a contract is one dollar. Kalshi's fee scales with proximity to 50 cents, which is precisely where most interesting election contracts sit. A cost that looks trivial in percentage terms can be a large fraction of your actual edge.

What the 2026 midterm markets look like right now

The midterms are the largest live test of everything above. Roughly $200 million has traded on midterm outcomes across Kalshi and Polymarket, and the two venues currently disagree in an instructive way: traders price a Democratic House alongside a Republican Senate.

Market	Venue	Price	Reads as
Democrats win the House	Polymarket	~86c	~86% — a strong favourite, but one that should still fail roughly one time in seven
Republicans hold the Senate	Kalshi	~57c	~57% — close to a coin flip; treat confident commentary here with suspicion

Liquidity is concentrated rather than spread evenly. Southern Senate and governor primaries in Texas, Kentucky, California and Florida account for more than $70 million of Kalshi's midterm volume on their own. That matters for the depth warning above: the headline national markets are deep enough to take seriously, while many individual district contracts are not.

The scrutiny has followed the money. Election officials have raised concerns that market odds could shape public trust in results — particularly when a market favourite loses and the outcome is read as evidence something went wrong, rather than as the 30% branch of a 70% forecast doing what it is supposed to do. Some jurisdictions have responded directly: Delaware County, Pennsylvania extended its ban on election workers betting on elections to cover prediction markets.

Kalshi, for its part, has been building surveillance for insider trading and says it now refers suspected misconduct to federal authorities — an acknowledgement that a market priced on non-public information is not a forecast, it is a leak.

Markets versus polls

The two are not competitors so much as different instruments. A poll measures stated intention now, with sampling error and house effects. A market price is a money-weighted forecast of the final result that already contains traders' views about turnout, undecideds, legal challenges and how much to trust the polls themselves. When they diverge sharply, the gap is usually the most informative thing on the page — it tells you the market believes something the survey has not captured yet.

Frequently asked questions

How does a prediction market contract actually pay out?: Each contract settles at $1.00 if the stated event happens and $0.00 if it does not. If you buy a Yes contract at 62 cents and the event occurs, you receive $1.00, a gain of 38 cents per contract before fees. If it does not occur, you lose the 62 cents you paid. The price is therefore capped between zero and one dollar, which is what makes it readable as a probability.
Does a 70% price mean the event will happen?: No. It means the market is pricing roughly a 70% chance. Events priced at 70% should fail about three times in ten. A market is well calibrated if, across many contracts priced near 70%, the outcome occurs close to 70% of the time — not if every 70% favourite wins.
Are election prediction markets legal in the United States?: Election contracts on a CFTC-regulated designated contract market are legal at the federal level. A federal district court ruled in September 2024 that exchanges may list election-outcome contracts, and the D.C. Circuit declined to stay that ruling in October 2024. The CFTC's proposed event-contract rule published June 10, 2026 treats election-result contracts as outside the gambling category, while proposing to bar contracts on assassinations, terrorism and armed conflict.
Why do prediction market prices differ from polling averages?: They are measuring different things. A poll estimates current stated voting intention with a margin of error; a market price aggregates money-weighted forecasts of the final outcome, incorporating turnout models, legal risk, and whatever traders think polls are getting wrong. Divergence is information, not necessarily error.
Can these markets be manipulated?: They can be moved, at least briefly. A trader willing to lose money can push a price away from consensus, and reporting in 2026 has highlighted thin-market vulnerability on both Kalshi and Polymarket. Manipulation is expensive and self-correcting in deep markets, but in a thin contract with little volume a headline price can be misleading. Check volume and open interest before treating a price as a forecast.
What fees should I expect?: Kalshi charges a trading fee that scales with how close the price is to 50 cents, which is where contracts have the most variance. Polymarket's cost structure differs and settlement happens on-chain. Fees matter disproportionately here because the maximum possible gain on a contract is one dollar, so a few cents of cost is a large share of edge.

Sources

Next: Kalshi vs Polymarket fees, compared

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