Prediction markets have moved from niche curiosity to mainstream investing conversation, giving traders a way to bet on outcomes ranging from elections and inflation reports to sports, crypto and weather. Monthly global trading volume on major prediction market platforms climbed from less than $5 billion in September 2025 to $24 billion in April 2026, according to Pew Research Center.
For investors, the appeal is not just the chance to trade these contracts, but the ability to watch them as real-time gauges of what the crowd thinks is likely to happen next.
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“Prediction markets are the best forecasting mechanism we have for many uncertain future events,” says Koleman Strumpf, Burchfield chair of political economy at Wake Forest University. That’s because they incentivize participants to gather information, trade on that information and help produce a forecast that reflects the market’s collective knowledge.
Still, these markets are not crystal balls. They produce probabilities, not guarantees, and they come with trading, liquidity and regulatory risks investors should understand before jumping in.
— What are prediction markets?
— How do prediction markets work?
— Are prediction markets accurate?
— Are prediction markets safe?
— What are the most popular prediction markets in 2026?
— Prediction markets: The takeaway.
What Are Prediction Markets?
Prediction markets are also called event futures markets and information markets. They are a unique type of futures exchange that facilitates speculation on the outcome of all sorts of common events. They differ from traditional securities markets in several important ways.
Rather than representing an equity ownership or debt obligation in a company the way a stock or bond does, every contract or investment, if you will, on a prediction market is linked to a specific future event or a specific piece of information that will be revealed in the future.
One example of an event covered by prediction markets is the presidential election. An example of a data point or piece of information that might be speculated on is consumer price index numbers. Conceptually, any future event or piece of information that can be documented and verified could be the subject of a prediction market contract.
How Do Prediction Markets Work?
Investors buy and sell contracts that pay a predetermined amount of money — a specific payout — if a future event comes to pass.
For instance, a contract could pay $1 if U.S. jobless claims exceed 235,000 in August. If an investor buys that contract for, say, 75 cents, they stand to make a 25% return if the number comes in at over 235,000 and they collect a dollar. The counterparty — the investor who sold the contract — would lose 25 cents, or the same 25%, if they held onto the contract and were forced to pay out the full dollar in the event the jobless numbers came in at 235,000 or below. Either investor, however, could lock in gains or limit losses by selling, or buying back the contract on prediction markets before it expired, providing they could find a willing party.
Prediction contracts are dynamically priced in real time whenever the markets are open. Prediction exchanges use active supply and demand data and sophisticated algorithms to determine market prices. If confidence in an event increases, that is reflected in the demand for that contract, and prices rise. If confidence falls, the price of the corresponding contract will fall in conjunction.
Are Prediction Markets Accurate?
Prediction markets can be more accurate than traditional forecasts because they give traders a financial incentive to seek out information, weigh competing outcomes and act on their views.
In theory, prices reflect the collective judgment of a broad group of participants, a concept sociologists and statisticians call “the wisdom of crowds.” As traders buy and sell contracts, market prices begin to reflect what participants collectively view as the most likely outcome.
In practice, however, it’s less “the wisdom of crowds” and more “the wisdom of a select few.” The most informative trades come from a small group of participants with stronger information, better analysis or more conviction. In a recent study, London Business School and Yale University professors reviewed predictions made on Polymarket between 2023 to 2025. They found only 3% of traders accounted for the platform’s accuracy. The rest of the traders simply generate volume and fund the informed traders’ profits.
Prediction markets may still be useful forecasting tools, but their accuracy depends on the quality of information and contract designs.
“When the information is limited or biased, that will influence the forecast,” Strumpf says. “And it is important to remember what a probability is: It says the likelihood something will occur and is not a guarantee that it will definitely happen.”
If a prediction market gives an event a 75% probability, investors should remember that it also implies a 25% chance of a different outcome.
Are Prediction Markets Safe?
Prediction markets are not regulated by the Securities and Exchange Commission because prediction markets don’t strictly meet the criteria for being considered a security. Instead, these marketplaces are overseen by the Commodity Futures Trading Commission, or CFTC.
Investors should not, however, assume that prediction markets are regulated as robustly or to the same extent as the stock and bond markets are. Historically, research-oriented prediction markets operated under a regulatory scheme called a CFTC no-action letter. This allowed them a high degree of self-regulation as long as they run a fair market, avoid deceptive practices and abide by the same basic rules as other futures markets.
Today, many of the newer U.S. retail event-contract markets are regulated by the CFTC. In early 2026, the commission proposed a rule that would require prediction markets that offer swaps or futures contracts to the general public to register with and be overseen by the CFTC. While the rule is not finalized yet, markets are increasingly registering.
Prediction markets can be useful, but don’t confuse “regulated” with “risk-free.” Prediction markets are relatively immature and may be more susceptible to market manipulation and fraud. It’s important to read the contract carefully because small nuances in how an event is defined can affect the result.
Also, there are no guarantees of liquidity like those investors are used to on the major stock and bond markets. It is possible to buy a contract but have trouble selling it if there are few — or no — takers. In other words, be very careful if you decide to trade predictions.
“One should anticipate the possibility of losses” if you trade these markets, Strumpf says. “Successful traders are ones who are able to weather periods of losses against other periods of gains — this is assuming the trader has enough insights for their trading to be successful over the long run.”
For this reason, he says that prediction markets are “in many ways most useful for those who do not trade in them.” Anyone can visit these platforms for free to see which topics are attracting activity and what outcomes traders currently view as most likely.
“So for many citizens, financial analysts or pundits, this is a way to quickly learn about the most important topics and can be an important part of their news diet, helping them read and interpret traditional news sources,” he says.
What Are the Most Popular Prediction Markets in 2026?
Prediction markets first captured the general public’s imagination during the 2004 presidential election, when it was discovered that an obscure futures market called Iowa Electronic Markets (IEM) proved more accurate in predicting the election’s outcome than national polls conducted by professional polling organizations.
The IEM, along with another market called Intrade, were pioneers in the prediction markets, but they’re mostly used for academic research and to test the predictive power of the masses. Today, there are several other platforms that are popular among prediction speculators.
Kalshi
Kalshi was the first platform approved by the CFTC and is still regulated by it. This means Kalshi operates under the same stringent regulations that traditional derivative markets do. This doesn’t eliminate risk, but it does provide a higher degree of oversight than on some other platforms.
Traders also appreciate the broad spectrum of markets this exchange covers. It includes geopolitical events, world economic indicators and even the weather.
PredictIt
PredictIt is a real money event futures market where speculators can buy and sell shares or contracts that have an interest in a variety of future events.
PredictIt focuses on political events, such as who will be the eventual candidates for specific elective offices and who will ultimately win them. This market is known for having an intuitive and user-friendly interface and for covering a wide range of political markets.
Polymarket
Polymarket claims to be the largest prediction market in the world. It’s non-custodial, meaning it never takes possession of your money, so you maintain control over your funds at all times. Trades settle on the blockchain for increased transparency. It ultimately registered with the CFTC in 2025.
Polymarket covers a broad spectrum of events that include politics, health, finance and even pop culture.
Prediction Markets: The Takeaway
Prediction markets can be useful tools for investors, but their greatest value may be informational rather than transactional. Prices can offer a real-time read on how traders are assessing uncertain events, but they should be viewed alongside traditional research, polling, economic data and news analysis.
If you do choose to trade on these markets, make sure you understand the risks, fees and exact details of any contracts. Treat them as speculation or gambling, not investing. And never trade money you can’t afford to lose.
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What Are Prediction Markets? Kalshi, PredictIt and Polymarket originally appeared on usnews.com
