Prediction Market, in plain words
A prediction market is an exchange that lists contracts on outcomes. A contract pays $1 if the outcome happens and nothing if it does not. Prices move between 1 and 99 cents as people buy and sell, so the price reads directly as a probability: a 51-cent contract says 51%.
Because other traders set the price, there is no sportsbook margin built in. The venue earns from a fee on each trade instead, and on most venues that fee is charged on top of the price you see. So the quoted price is not the price you pay, and the fee can turn a small edge into none.
That is why we treat exchange and prediction-market prices as real legs only after their fees. A price that looks better than every sportsbook may not be once the fee is in. Liquidity matters too: a price is only real for the number of contracts that are actually offered at it.
The idea, drawn
Worked example · illustration
100 contracts at 51 cents, with the fee
- Quoted
- 51¢ (−104)
- Kalshi fee
- $1.75
- All in per contract
- 52.75¢
- Real price
- −112
- 100 contracts at $0.51 cost $51.00 and pay $100.00 if the outcome happens.
- On football and basketball game markets, Kalshi's taker fee is 7% of price times one minus price, per contract, rounded up to the cent: 0.07 x 100 x 0.51 x 0.49 rounds up to $1.75.
- All in, each contract costs 52.75 cents, which is −112 as American odds, not −104.
The fee moved this price from −104 to −112. Compare that number with the sportsbooks, not the quote.