What Are Prediction Markets? How the Industry Works

Robinhood’s CEO Vlad Tenev told Business Insider,

“I think prediction markets are the future of not just trading, but also information."

His point comes down to how these markets work. Traders put money behind what they think will happen, and their trading behaviour moves the contract price. That price gives the market a live probability for a real-world event such as an election result or a football match.

But what are prediction markets, and how do they work?

This guide explains how these platforms operate, make money, acquire traders, manage liquidity, and work within different regulatory frameworks.

Prediction Markets at a Glance:

• What is it? An exchange for event contracts on real-world outcomes, where prices reflect market-implied probabilities.

• Is it sports betting? No. Traders trade against each other on an exchange, while sportsbook customers bet against the house.

• How big? Monthly trading volume grew from $32M in January 2024 to $12.6B in January 2026.

• Key players: Kalshi, Polymarket, and Robinhood, with DraftKings, FanDuel, Crypto.com, and Gemini entering the category.

• Where companies compete: Platforms compete to reach and acquire traders. Since January 2026, Google allows only eligible, certified US advertisers to run prediction market ads. Programmatic platforms like Blockchain-Ads offer broader geographic reach across permitted global markets.

What Is a Prediction Market?

A prediction market is an exchange where traders buy and sell contracts based on the outcomes of future events. Instead of the platform setting an outcome or taking the other side of a trade, it brings traders into a marketplace where they take positions against each other.

As those trades happen, contract prices change based on what the market collectively expects to happen. This turns a prediction market into two things at once: a trading platform and a live forecast of real-world events.

The Commodity Futures Trading Commission (CFTC) calls the products traded on these platforms “event contracts” and notes that their prices reflect traders' perceived probability of an outcome.

Prediction markets can cover:

• Politics: elections and policy decisions
• Economics: interest rates, inflation, and economic data
• Sports: games and tournaments
• Financial markets: asset prices and market events
• Entertainment: awards and major cultural events

As new events gain attention, platform operators have new markets to offer, wider audiences to reach, and fresh opportunities to bring traders onto the platform.

How Do Prediction Markets Differ From Sports Betting

Unlike prediction markets, which operate on a peer-to-peer, exchange-style model, traders in sports betting bet against the house or sportsbook. Customers place wagers with a bookmaker, which sets the odds and takes the other side of the bet.

The prices do not move freely with buying and selling activity. They are set and adjusted by the bookmaker, often called a bookie, which also determines the payout. Therefore, sports betting is considered gambling.

On the other hand, prediction markets work on a yes-no framework where traders buy and sell contracts based on whether an event will happen. The price moves with trading behaviour and reflects the market’s holistic expectation of the outcome.

Here’s how prediction markets and sports betting differ completely:

How Prediction Markets Work

Behind every event contract is a process that takes the market from creation to settlement. The platform lists event contracts, facilitates trading, matches opposing orders, and settles contracts once the outcome is confirmed.

Here’s how that process works:

1. The platform creates the market and sets the rules

Every prediction market starts with a clearly defined event and a contract tied to its outcome.

A market might ask: Will the Kansas City Chiefs win the Super Bowl? Before trading begins, the platform defines what qualifies as a Yes or No outcome, when the market closes, and which source will determine the final result.

These rules matter because contracts are settled against predefined criteria, not simply what traders believe happened.

2. Traders set the price through the market

Once trading begins, prices are shaped by the orders traders place.

For example, when a binary contract is priced from $0 to $1, a Yes price of $0.70 represents roughly a 70% market-implied probability that the event will happen.

That price is not fixed by the operator. It reflects the market's perceived likelihood of an outcome. Traders place “bids” and “asks”:

• A bid is the highest price someone is willing to pay.
• An ask is the lowest price someone is willing to sell for.

These orders appear in an order book, showing the prices and quantities currently available to trade. As traders react to new information, orders change, and the market price moves with them.

3. The exchange matches buyers and sellers

When compatible buy and sell orders meet, the platform matches them and executes the trade.

For example, if a trader bids $0.60 for Yes and a seller is willing to accept $0.60, the exchange matches the orders and executes the trade.

That is where liquidity becomes important. A liquid market has enough orders available for traders to buy or sell without moving the price sharply. In a less liquid market, fewer orders are available, which makes it harder for traders to enter or exit a position.

Platforms therefore have an incentive to keep their markets active. Polymarket, for example, uses maker rebates to reward participants who place orders that add liquidity to its order books.

4. The platform resolves the market

Once the event is over, the platform determines the outcome using rules published before trading began. These rules specify what qualifies as a Yes or No and the source used to confirm the result, such as an election authority, government agency, or official sports result.

On platforms that use blockchain-based settlement, oracles connect real-world outcomes with on-chain contracts. An oracle provides or verifies the external information needed to resolve a market.

For instance, Polymarket uses UMA’s Optimistic Oracle. A result is proposed based on the market rules, and others have time to challenge it. If no valid dispute is raised, the result is confirmed, and the market settles.

5. Winning contracts settle, and payouts are processed

After the outcome is confirmed, the platform settles the contracts and processes the payouts.

The CFTC explains this with a $1 event contract on “Will it rain tomorrow?” If a trader buys a Yes position for $0.70 and it rains, the contract pays $1, leaving a $0.30 profit before fees and taxes. If it does not rain, the trader loses the $0.70 invested.

Together, these steps explain how the exchange operates, but running and growing a prediction market involves a much wider ecosystem beyond the platform itself.

Who Are the Key Players in the Prediction Market Industry?

According to Pew Research Center, Kalshi and Polymarket recorded nearly $24 billion in trading volume in April 2026. But exchanges are only one part of the prediction market industry.

Around them are traders, affiliates, advertising platforms, and agencies, each supporting a different part of the industry's growth. Let’s look at the key players and their roles in the industry:

Platform Operators

Platform operators are the businesses building and running prediction market exchanges. Beyond listing event contracts, they run the exchange and build a trader base that supports trading volume and liquidity.

The three major names illustrate different approaches to building and operating a prediction market:

• Kalshi: Represents the regulated exchange model in the US. The CFTC designated Kalshi as a Designated Contract Market (DCM) in 2020, giving it a federally regulated route to list event contracts.

It has since expanded towards institutional adoption and broker distribution, making it an important part of the US prediction market infrastructure.

• Polymarket: Represents the crypto-native side of the industry. It built a global audience around blockchain-based prediction markets before establishing a regulated US presence through Polymarket US, which received DCM designation in 2025. This gives it a presence across both crypto-native and regulated markets.

• Robinhood: Takes a distribution-led approach through its Prediction Markets Hub, bringing event contracts to its existing retail-investor base rather than building a standalone audience.

Traders

Traders are the demand side of prediction markets. Their orders generate the trading volume and liquidity to keep markets running.

For acquisition teams, prediction market traders overlap with several established audiences. A March 2026 survey of 482 prediction market users found that, in the previous six months:

• 65.4% had bought or sold cryptocurrencies.
• 73.7% had participated in online sports betting or daily fantasy sports.
• 60.4% had traded traditional stocks or ETFs.

This crossover gives operators several audience segments to work with, from sports bettors and crypto traders to retail investors. The right segment depends on the event contracts being promoted and the traders an operator wants to acquire.

💡Dig deeper into who these traders are with our prediction market user demographics guide.

Affiliates

Affiliates give prediction market platforms another route to acquire traders by targeting audiences already built by media buyers, creators, publishers, and comparison sites.

The model is performance-based. Partners might earn a cost per acquisition (CPA) when they drive a funded signup or receive a revenue share from the traders they refer. This ties acquisition spend to a measurable outcome rather than paying affiliates for reach.

For example, Polymarket pays 10% of net trading fees from direct referrals and 5% from indirect referrals under its referral program.

That makes affiliates valuable beyond referral traffic. They give platforms access to established audiences while linking payouts to the traders and revenue they generate.

Advertising Platforms

Advertising platforms give prediction market businesses paid access to traders beyond their existing audiences. Businesses buy traffic across search, display, native, video, in-app, and other placements.

Note: Not every advertising platform allows prediction market campaigns. Policies determine who gets access, where ads run, and which products businesses promote.

Google, for instance, opened prediction market advertising in the US in January 2026 but requires certification and limits access to eligible CFTC-regulated DCMs and NFA-authorised brokerages.

Programmatic advertising platforms such as Blockchain-Ads give prediction market advertisers access to audiences across display, native, video, and in-app inventory through their DSP, which handles the buying and targeting of ad placements.

Agencies

While advertising platforms provide access to paid media, agencies plan, execute, and optimise campaigns across those channels.

They decide which audiences and channels to target, allocate media budgets, test ad formats, and track campaign performance. When campaigns span multiple channels, agencies bring strategy, media buying, execution, and measurement under one plan.

These five key players keep the industry running, while the platform turns that participation into revenue. Let's see how.

How Do Prediction Market Platforms Make Money

Prediction market platforms generally earn revenue by charging fees when traders buy and sell event contracts. The amount, timing, and structure of these fees vary by platform, market category, payment method, and order type.

Here’s how platforms make money:

Transaction Fees

Transaction fees are the clearest revenue source. When a trade executes, the platform may collect a fee, turning trading volume into revenue.

One common fee model distinguishes between makers and takers:

• Maker: Places an order that stays on the order book for another trader to accept.
• Taker: Accepts an available order and executes the trade.

Platforms may charge the two differently. Makers add liquidity by leaving orders available to trade, so they may pay lower fees or receive rebates. Takers remove available liquidity and may pay a transaction fee.

Polymarket charges taker fees in several market categories, while its published prediction-market fee schedule lists no maker fee. It uses a portion of eligible taker fees to fund maker rebates, which are intended to encourage traders to provide liquidity.

Note: Some categories, including geopolitical and world-events markets, are listed as fee-free, showing that fees can differ by market type.

Funding and Payment Fees

Some platforms charge fees when traders add money to their accounts, depending on the payment method they choose.

For instance, Kalshi charges up to 2% for debit-card deposits, while bank transfers have no deposit fee. These charges help cover the costs involved in processing card payments.

However, funding fees are not universal. Polymarket does not charge its own deposit or withdrawal fees, although third-party payment providers and blockchain network fees may still apply.

As a result, funding fees are better understood as a potential additional revenue or cost-recovery mechanism, rather than a standard income source across all prediction-market platforms.

How Prediction Market Platforms Acquire Traders

According to the American Gaming Association, prediction market platforms spent nearly $200 million on digital advertising in the first seven months of 2026.

Platforms acquire traders through paid advertising, affiliate partnerships, organic channels, and referrals. The two main acquisition routes are advertising and paid search.

Programmatic Advertising (Worldwide)

Programmatic advertising helps prediction market platforms reach traders across global markets and permitted jurisdictions. However, it is not a compliance workaround. Campaigns are still subject to applicable consumer-protection, privacy, and local advertising rules.

Blockchain-Ads was one of the early platforms to support prediction market advertising. Through its DSP, campaigns run across:

• Display ads on websites
• Native ads that match publisher content
• Video ads across digital media
• In-app ads inside mobile applications

The platform uses behavioural, interest-based, and on-chain signals to identify audiences, which allows prediction market campaigns to reach people already active in crypto, trading, investing, sports, and other relevant categories.

To put this into context, Coinbase’s six-month campaign acquired 31,896 new traders at a $12.85 blended CPA and generated $8.13 million in attributed trading volume.

Unlike paid search, programmatic is available to both certified and non-certified prediction market platforms, subject to platform requirements and local laws. Only a few programmatic platforms currently support the category, so options remain limited.

💡Our prediction market advertising guide breaks down the channels, targeting options, and ad requirements for acquiring traders.

Paid Search (US Only)

Paid search gives prediction market platforms access to potential traders, but it is currently limited to federally regulated businesses in the US.

As discussed earlier, Google Ads requires advertisers to be:

• A CFTC-authorised DCM whose primary business is listing exchange-traded event contracts
• An NFA-authorised brokerage providing access to contracts listed by an eligible DCM

Advertisers must also receive Google certification before running prediction market ads. Google currently permits these campaigns in the US, excluding Michigan, Nevada, New York, and Ohio.

💡You can find the complete advertising and certification requirements in our Google Ads prediction market policy guide.

Similarly, Microsoft's Pilot Programs policy states that advertisers must meet CFTC or NFA eligibility requirements and apply for approval.

Note: Microsoft limits where ads can run and restricts ads on topics such as elections and geopolitical conflicts.

Consequently, paid search is a high-intent but tightly restricted acquisition channel compared with programmatic advertising.

How Prediction Markets Are Regulated

Prediction market regulation depends heavily on where the platform operates and how event contracts are legally classified. Let’s see how:

How Prediction Markets Are Regulated in the US

As discussed, US prediction markets offering event-contract derivatives operate within the CFTC framework. Platforms that offer these contracts to retail traders generally operate through a DCM, a federally regulated exchange.

Now, to become and remain a DCM, an exchange must comply with 23 core principles under the Commodity Exchange Act. These requirements cover areas such as:

• Market surveillance and prevention of manipulation
• Protection of market participants
• Financial resources and risk management
• Recordkeeping and reporting
• System safeguards and operational resilience

After compliance, the CFTC continues to oversee DCMs. Exchanges act as front-line regulators of their own markets and must monitor trading, enforce their rules, and ensure the event contracts they list comply with federal requirements.

This is the regulatory structure used by US prediction market exchanges. The CFTC also maintains filings for event contracts listed by DCMs, covering markets across sports, economics, politics, crypto, weather, and other real-world events.

How Prediction Markets Are Regulated Outside the US

Outside the US, prediction markets face a much more fragmented regulatory landscape. The same event contract can fall under gambling, financial-services, or online-gaming laws.

Here’s how three major markets approach them:

• United Kingdom: The UK Gambling Commission says prediction markets would likely be treated as gambling in Great Britain. Operators need the appropriate gambling licence, and unlicensed platforms should not target or transact with British consumers.

• European Union: ESMA says event contracts must be assessed against existing restrictions on binary options.

If an event contract qualifies as a financial instrument with a binary payoff, restrictions on marketing, distribution, or sale to retail clients may apply. Some contracts may instead fall under national gambling laws.

• India: The Promotion and Regulation of Online Gaming Act, 2025 prohibits online money games, along with their advertising, promotion, facilitation, and payment processing. Prediction markets involving money therefore face a restrictive legal environment in India.

The key distinction is demand versus market access. Strong interest from traders in a country does not mean a prediction market can legally operate or advertise.

💡Check out our guide to the best GEOs for prediction market advertising for a country-by-country breakdown.

How Fast Is the Prediction Market Industry Growing

A report by SOFTSWISS shows that monthly prediction market trading volume grew from $32 million in January 2024 to $12.6 billion in January 2026. Therefore, prediction market trading volume has grown dramatically over the past two years.

Platform-level growth tells the same story:

• Robinhood: More than 12 billion event contracts were traded in 2025. In Q2 2026 alone, that reached 13.6 billion, up more than 10x year over year.

• Kalshi: The 2026 FIFA World Cup brought 3 million new users to the platform, while more than $1.2 billion was traded on its World Cup winner market.

• Search demand: In an internal analysis of Google Keyword Planner data, Blockchain-Ads estimated that U.S. monthly searches for a defined set of prediction-market terms reached 14,800, up 1,985% year over year.

Furthermore, analysts at Citizens Financial Group estimate annual prediction market revenue could grow from roughly $2 billion today to $10 billion by 2030.

The growth is not perfectly linear. Prediction markets are event-driven, so elections, major sports tournaments, and other high-interest events can cause sharp spikes in trading.

💡For more data on the industry's growth, read our prediction market statistics guide.

Where Prediction Market Platforms Compete Next

As more businesses enter prediction markets, traders have more platforms to choose from.

DraftKings acquired Railbird Exchange, while Crypto.com acquired Nadex. Gemini took another route, receiving its DCM designation in December 2025.

Others have entered through partnerships. FanDuel partnered with CME Group, while Webull partnered with Kalshi to offer prediction markets through its platform.

With platforms competing across similar contract types and categories, acquiring and retaining traders becomes central to market position. Our prediction market media buying guide covers how platforms can use paid channels to reach and acquire traders as competition grows.

In practice, full-funnel growth puts platforms ahead by guiding potential traders from the awareness stage through verification and account funding to their first trade.

Explore the audiences available for your next campaign on Blockchain-Ads.