What Is an Event Contract? How Prediction Market Contracts Work

How Event Contracts Work

Every event contract is structured around a simple yes-or-no question: “Will the Fed cut rates in March?” or “Will it snow in Chicago on Christmas Day?” or “Will a specific film win Best Picture?”

You can buy YES or NO at whatever price the market offers. If YES is trading at 62¢, the market estimates a 62% probability the event will happen. Buying YES costs 62¢ and pays $1 if correct. Buying NO costs 38¢ (100¢ minus 62¢) and pays $1 if the event does not happen. Your profit is always $1 minus what you paid, and your maximum loss is always what you paid.

To convert between contract prices, implied probabilities, and familiar formats like American or decimal odds, use the Prediction Market Odds Converter.

Event Contracts vs Traditional Betting

Event contracts and sports bets both involve wagering on outcomes, but the structure is different in ways that matter. A traditional sportsbook sets the odds and takes the other side of your bet — the house profits when you lose. An event contract exchange like Kalshi operates an order book where buyers and sellers trade directly. The exchange earns revenue from trading fees, not from your losses.

This structural difference also affects pricing. Sportsbook odds include the house’s margin (the vig or juice) baked into every line. On a prediction market, the vig comes from the bid-ask spread between buyers and sellers, plus any platform fees. To see how much vig is built into any set of prices, use the Vig Calculator.

Event Contracts vs Options and Futures

Event contracts share some DNA with traditional derivatives, but they are simpler in key ways. An options contract gives you the right to buy or sell an underlying asset at a specific price. A futures contract obligates you to do so. Both can involve complex pricing models, margin requirements, and leverage.

Event contracts are binary — they settle at $1 or $0, and your maximum risk is always the price you paid. There are no margin calls and no possibility of losing more than your initial investment. That simplicity is why the CFTC regulates event contracts as a distinct category under its derivatives framework, separate from traditional options and futures.

Who Regulates Event Contracts?

In the United States, event contracts fall under the jurisdiction of the Commodity Futures Trading Commission (CFTC). The CFTC regulates them as a type of swap or binary option within the commodity derivatives framework. Kalshi operates as a CFTC-designated contract market (DCM) with a registered clearing organization, subject to CFTC rules on market integrity, surveillance, customer protections, and reporting. For a deeper look at Kalshi’s regulatory status, see What Is Kalshi?

The CFTC does place limits on what can be traded as an event contract. Regulation 40.11 prohibits certain event contracts involving terrorism, assassination, war, gaming, or unlawful activity under state or federal law, and also allows the CFTC to prohibit similar activities by rule or regulation where it determines they are contrary to the public interest. The CFTC withdrew its 2024 proposed amendments to Regulation 40.11 and in March 2026 issued a new advance notice of proposed rulemaking (ANPR) seeking public comment on how the rule should be updated.

Internationally, the regulatory picture varies significantly. Some countries permit event-based trading under financial regulation, while others classify it as gambling or prohibit it entirely. For a look at how this plays out in one major market, see Why No Prediction Markets in Japan?

What Can You Trade as an Event Contract?

The range of event contracts has expanded significantly since Kalshi launched. Common categories include:

• Economics and central bank policy

  Will the Fed raise rates? What will CPI be? Will GDP growth exceed a specific threshold?

• Weather

  Will the temperature in Chicago exceed 90°F on a given day? Will it snow in New York on Christmas?

• Politics and elections

  Will a specific candidate win a state? Will a bill pass the Senate?

• Sports

  Will a team win a specific game or championship? What will the final score be?

• Financial benchmarks

  Will the S&P 500 close above a specific level? Will Bitcoin exceed a certain price?

• Culture and entertainment

  Will a film win an award? Will a specific event happen on a reality show?

The specific markets available depend on the platform. For a comparison of what Kalshi and Polymarket each offer, see Kalshi vs Polymarket.

How Event Contract Pricing Works

The price of an event contract directly represents the market’s implied probability. A contract priced at 73¢ means the market collectively estimates a 73% chance the event will happen. If you think the true probability is higher, you have a potential edge buying YES. If you think it is lower, you have a potential edge buying NO at 27¢.

This is the core logic behind prediction market trading: you are not simply predicting whether something will happen — you are evaluating whether the market’s price accurately reflects the true probability.

To evaluate whether a specific contract price represents a mathematical edge given your own probability estimate, use the Expected Value Calculator. To determine how much capital to allocate to a trade where you believe you have an edge, use the Kelly Criterion Calculator.

Fees and Costs

Event contract trading is not free. Every platform charges fees in some form, and those fees can erode thin edges quickly. Kalshi uses a formula-based fee that scales with contract price — highest at mid-probability (around 50¢) and lowest near the extremes. Polymarket is more variable, with some markets fee-free and others carrying taker fees. PredictIt charges a 10% profit fee plus a 5% withdrawal fee.

Understanding exactly how fees affect your expected return on any given trade is critical. For a side-by-side breakdown, see Prediction Market Fees Compared.

Frequently Asked Questions

Common questions about how event contracts work, their legality, risk, and taxes.