What Are Prediction Markets? (And Why They're Not Investing)

A prediction market lets you buy a contract that pays out if an event happens, such as a team winning, a rate hike or an election result. Each contract pays a fixed amount, usually $1, if you're right, and nothing if you're wrong. The price you pay reflects what the market thinks the odds are.

They can be fun and occasionally informative. They aren't investing. Your money doesn't own a share of a business or earn interest. It's a bet on an outcome, and on average most people lose.

Checked October 12, 2026. The legal situation is changing quickly; we re-check this page regularly.

How an event contract works

Every contract is a yes-or-no question with a settlement date.

If you buy 10 "Yes" contracts at 62¢, you pay $6.20. If Team A wins, you get $10, a $3.80 profit before fees. If they lose, you lose the $6.20.

The price is the market's odds. 62¢ means traders collectively think there's roughly a 62% chance. You only make money over time if you're consistently better at judging odds than everyone else trading. You can usually sell before the event settles to lock in a gain or cut a loss.

Prediction markets vs. investing vs. sportsbooks

Unlike a sportsbook, you trade against other people at prices they set. That can make prices fairer, but for every winner there's a loser, and the platform takes a cut.

The risks

• You can lose everything you put in. Each losing contract goes to zero.
• Fees add up. Trading fees and spreads mean the average trader loses money.
• It's easy to overtrade. Live odds and social features are built to keep you engaged.
• Legal status can change. A platform could stop offering some contracts in your state.
• It isn't a savings plan. Money for bills, an emergency fund or retirement shouldn't go here.

Are prediction markets legal in the US?

US prediction market exchanges are regulated by the Commodity Futures Trading Commission (CFTC), not state gambling regulators, which is why they're available in many states without legal sports betting. Sports contracts are the disputed part:

• In April 2026, the Third Circuit appeals court sided with Kalshi, saying federal law likely blocks New Jersey from applying its gambling rules.
• The Ninth Circuit (Nevada) and, on September 25, 2026, the Sixth Circuit (Ohio and Tennessee) ruled the other way: states can regulate sports event contracts.
• New Jersey has asked the Supreme Court to decide, and the NFL filed a brief supporting state oversight on October 8. The Court hasn't agreed to hear the case yet.

For now, which contracts you can trade depends on your state. Most platforms require you to be 18 or older; check each platform's state list before signing up. Gains are taxable, so keep a record of every trade.

If you decide to try one

Treat it like entertainment spending, not investing:

1. Set a fixed amount you're fine losing, and don't top it up after a loss.
2. Keep it separate from your savings and investment accounts.
3. Stick to events you understand and trade small.
4. Read the settlement rules for each contract. They define exactly what counts as "yes".

OG is a CFTC-regulated US prediction market for sports, finance, politics and culture events, run with Crypto.com's US derivatives exchange. You must be 18 or older. It isn't available in Arizona, and sports contracts aren't offered in several states, including Illinois, Maryland, Massachusetts, Michigan, Nevada, New Jersey and Ohio. Its welcome offer, as reported this month, gives new users a $10 bonus after a first $10 trade settles; check the current terms on OG before you sign up. It suits people who follow sports or news closely and want a small, capped amount of entertainment trading. It doesn't suit anyone trying to grow savings or anyone who finds it hard to stop.

Disclosure: BeginnerBull earns a commission if you sign up for OG through this link. We think most readers are better off putting that money into an index fund. If gambling is causing you problems, call or text 1-800-GAMBLER.

If you want your money to grow

Prediction markets don't do that job. For money you want to grow over years, start with how to invest in index funds and dollar-cost averaging.

What you can trade

Sports now make up a large share of trading. The NFL told the Supreme Court that football accounted for about $1.8 billion of trading on the first Sunday of the season, more than half the total.

How fees eat into a "fair" bet

Imagine a contract that really is a 50/50 coin flip, priced at 50¢. If you buy 100 contracts many times over, you'd break even before fees. Add a fee of 2¢ per contract and you pay $52 for every $50 you expect to win back, losing about 4% of your stake on average every time. That's why frequent traders tend to lose even on fairly priced markets.

Why people watch the odds

Prices on big events, such as a Fed decision, can be a useful snapshot of what traders expect. Financial news now often quotes them. You can read the odds without trading.

Signs it's becoming a problem

• You deposit more to win back losses.
• You trade with money meant for bills or savings.
• You hide how much you trade from people close to you.
• You feel restless or irritable when you can't trade.

Most apps let you set deposit limits or take a break. If you see these signs, call or text 1-800-GAMBLER for free, confidential help.

FAQ

Are prediction markets gambling? Federally, they're regulated as financial contracts by the CFTC, and some states and courts disagree for sports contracts. Practically, you're betting on an outcome with a fixed payout.

Can you make money on prediction markets? Some people do, usually those with better information or discipline than the market. Most traders lose money after fees.

What's the difference between a prediction market and a stock? A stock is a share of a business that can grow for decades. An event contract pays $1 or $0 on a single outcome, then it's over.

Do I pay taxes on prediction market winnings? Yes, gains are taxable. How event contracts should be reported isn't fully settled, so keep records of every trade and check with a tax professional if you trade a lot.

How old do you have to be to use a prediction market? Usually 18, though some platforms or states require 21. Check the platform's terms.

Are prediction markets available in every state? Most platforms operate in most states, but sports contracts are restricted in several, and some platforms exclude a few states entirely.

Is Polymarket legal in the US? Polymarket runs a separate CFTC-regulated US platform, with state restrictions on some contracts. Check its current state list.

Can I lose more than I put in? Not when you buy a contract outright. Your maximum loss is what you paid for it.