Prediction markets let traders buy and sell positions tied to a defined future outcome. A contract’s price can indicate the market’s current implied likelihood, while its written terms determine what counts as the outcome, what it pays, and who decides when it settles. Those details matter: an event appearing to be over does not necessarily mean the contract has resolved.
What is an event contract?
An event contract is a tradable position whose payout depends on whether a specified event or outcome occurs. In a basic binary example, a “Yes” contract pays $1 if its stated condition is met and $0 otherwise. The Federal Reserve describes these contracts as options-like: traders buy or sell them at a price, and the payout depends on the outcome. The contract’s exact written terms—not a trader’s general interpretation of the event—control the result. Federal Reserve staff paper
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Not every event contract is a simple yes-or-no position. Some frameworks combine several yes/no contracts, offer multiple choices, or use outcome ranges with partial payouts. Read the payout terms for the specific contract rather than assuming every position has the same binary structure. CFTC consumer overview
How a contract price signals market expectations
For a binary contract, a price between $0.01 and $0.99 can be read approximately as a market-implied likelihood: CME Group’s example treats a $0.05 price as about 5% and $0.95 as about 95%. This is an interpretation of the market price, not an objective probability, guarantee, or promise that the outcome will occur. The CFTC puts it this way: “A contract’s price reflects traders’ perceived probability of the event outcome.” CME Group’s event-contract explanation · CFTC consumer overview
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A price can also reflect trading conditions, including the available buyers and sellers and the cost of entering or leaving a position. It should not be treated as a forecast with certainty or as a statement about what an individual trader believes.
What a binary position can pay
Suppose a “Yes” contract costs $0.45 and pays $1 if the event meets the contract’s criteria. If it settles “Yes,” the gross difference between the payout and purchase price is $0.55 before fees. If it settles “No,” the buyer loses the $0.45 purchase cost, plus applicable fees. Actual net results depend on fees and, if the trader exits early, the price received when selling. CME’s GDP-threshold example likewise notes that fees affect the profit calculation. CME Group’s event-contract explanation
The $1/$0 example describes a binary contract, not every possible payout design. Multi-outcome and range-based contracts may pay differently, so check the contract’s stated payout schedule before trading. CFTC consumer overview
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Can you exit before the event is settled?
Trading does not necessarily have to continue until settlement. CME says a trader may trade a position more than once and close it before the event occurs or while it is taking place. The result of an early exit depends on the sale price, available liquidity, and fees; the final event outcome does not determine the price at which an earlier sale was made. CME Group’s event-contract explanation
How settlement determines the payout
Settlement applies the contract’s rules to evidence about the event. Those rules should specify what counts as the outcome, which source is authoritative, when the outcome is determined, and who makes the determination. The CFTC says customers are entitled to clear information about payout and how, when, and by whom settlement decisions will be made. CFTC consumer overview
For example, Kalshi says its market team finalizes a result after the official outcome is confirmed. It may wait for finalized information from a source agency, such as an official league statistics source or a government release. The source and process vary by market; the relevant contract rules are the place to check them. Kalshi Help Center: market settlement
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Why a market can remain pending after an event ends
Three times can differ: when the event ends, when trading closes, and when the result is determined. Kalshi cautions that a displayed close time may not be the determination time. A market may remain pending while an official source finalizes data or because its rules specify a later determination time. Kalshi Help Center: market settlement
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What makes settlement criteria reliable—or vulnerable?
Clear settlement begins with a precise, objectively checkable event definition, explicit criteria, a reliable data source, and a timeframe. Kalshi’s market-suggestion guidance identifies these as important features of a well-defined market. Vague wording or a weakly specified source can make it harder to know in advance how a result will be determined. Kalshi Help Center: market suggestions
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Contracts based on a person’s discrete conduct can pose a different integrity concern if that conduct is not independently generated or externally verifiable. In a September 22, 2026 staff advisory, CFTC Division of Market Oversight staff described “mention markets” as presenting heightened manipulation risk for that reason. This is a warning about a contract type’s susceptibility to influence, not evidence that misconduct is common across prediction markets. CFTC staff advisory on mention markets
Independent reader supportYour contribution helps us test, update, and keep practical guides available for everyone.Oversight and financial risk
In the United States, CFTC-regulated exchanges are subject to exchange rulemaking, surveillance, and regulatory oversight intended to deter manipulation and insider trading. That oversight does not eliminate the possibility of financial loss or guarantee immediate settlement. The CFTC advises customers to review risks, costs, commissions, penalties, and contract-specific settlement rules, and to trade only with risk capital. Rules and protections should not be assumed to be the same across all venues or jurisdictions. CFTC consumer overview
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Two CFTC advisories illustrate why conflicts and information access matter. A February 25, 2026 Enforcement Division advisory described a candidate trading on his own candidacy and an individual affiliated with a YouTube channel who likely had advance access to video contents before publication. The advisory stated that the CFTC has authority to police illegal trading practices on designated contract markets. These examples show possible integrity issues; they do not establish how prevalent such conduct is. CFTC Enforcement Division advisory
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What to check before trading
Compare the actual contract rules and trading conditions—not just the headline or displayed price. A useful review includes:
- Event definition and contract version: Identify exactly what must happen and which version of the terms applies.
- Settlement source and criteria: Find the named source, the evidence it supplies, and any rules for conflicting or revised information.
- Determination timing: Check trading close and determination time separately, along with any stated process for finalizing results.
- Payout structure: Confirm whether the contract is binary, has multiple outcomes, or pays across a range.
- Price, fees, liquidity, and exit: Consider entry cost, applicable fees, the market’s trading activity, and whether you can sell before resolution.
- Venue rules and eligibility: Check the exchange’s oversight and rules, plus the eligibility requirements that apply in your jurisdiction.
The CFTC notes that more complex outcome structures may attract fewer participants and comparatively lower liquidity. A price that appears favorable is not enough to assess a position if it is difficult or costly to exit. CFTC consumer overview
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