What are prediction markets?
How markets turn opinions into odds — and why the price is often the best forecast you can find.
5 min read
A prediction market is a place where people buy and sell contracts tied to a future event — an election, a rate decision, a game, a product launch. Each contract pays out if the event happens and expires worthless if it does not.
A price is a probability
Because a winning contract is worth $1, its price maps directly to a probability. A contract trading at 67¢ means the market, on balance, thinks the event is about 67% likely. As new information arrives, buyers and sellers move the price — and the probability moves with it, in real time.
Why the crowd is often right
No single trader has to be brilliant for the price to be smart. People with real information, real money, and real incentives keep pushing the price toward the truth. Study after study shows these markets often forecast better than polls, pundits, and models — precisely because being wrong costs money.
The market price is a forecast with skin in the game. That makes it a strong starting point — and a high bar to beat.
Why prices still get it wrong
Markets are not magic. Prices drift when a market is thin, when one headline is over-weighted, when attention floods in around an event, or when few people have looked closely. Those gaps between the price and the real probability are where the opportunity lives.
- Thin liquidity — a handful of orders can push the price away from fair value.
- Headline bias — the crowd over-reacts to the latest news, not the full picture.
- Neglect — niche markets nobody has properly analysed.
Where EventEdge fits
We produce an independent probability estimate for each market we cover, with the reasoning behind it. When our read matches the market, you have confirmation. When it does not, you can see exactly why — and decide which number to trust.