What Are Prediction Markets?

If you've encountered prediction markets for the first time, it's natural to have questions. How is this different from placing a bet? How does it relate to trading stocks or options? And perhaps most importantly — does this fit into a broader investment or trading strategy?

Those are the right questions to start with.

A market built around outcomes

Most financial markets are continuous. Stocks, ETFs, and futures trade up and down as new information arrives, and prices can keep moving long after an event occurs. Prediction markets are different in a fundamental way.

In a prediction market, participants buy and sell contracts based on whether specific real-world events will occur. Prices reflect the market's collective estimate of how likely each outcome is at any given moment. Once the event resolves, trading stops and contracts settle — there's no open-ended price discovery after the fact.

That structure shifts the focus away from reacting to outcomes and toward something more precise: assessing how likely an event is, whether the current price accurately reflects that probability, and how expectations might change before resolution.

The case for aggregated expectations

One of the more studied properties of prediction markets is their forecasting track record. When a large number of participants put real capital behind their views — each drawing on different information, expertise, and perspective — the resulting prices tend to aggregate that information efficiently. This process often produces probability estimates that are more accurate than any single analyst, poll, or forecast.

This doesn't mean prediction markets are infallible. They reflect collective expectations, not certainties. But the mechanism of price formation — where participants bear the consequences of being wrong — tends to produce more calibrated estimates than systems where there is no accountability for inaccuracy.

A regulated asset class

Prediction markets in the U.S. operate under CFTC (Commodity Futures Trading Commission) oversight — the same regulatory body responsible for futures and derivatives markets. Kalshi, Moomoo's partner for event contracts, is a CFTC-regulated exchange. This is an established financial product within a defined regulatory framework, not an informal betting platform.

Understanding the risk before you trade

Like any financial instrument, event contracts involve real risk. Because outcomes are binary, losses can feel immediate and absolute. A contract that doesn't resolve in your favor settles at zero — there's no partial recovery. Your maximum loss on any position is the amount you invested, but that amount can be lost entirely.

This makes how you approach participation — position sizing, selectivity, and discipline — at least as important as the views you hold. We cover risk management in detail in Articles 7 and 8.

These markets are also useful to observe  

Even for participants who choose not to trade, prediction markets provide something of value: a continuously updating, market-priced signal of how likely various outcomes are considered to be. Watching how contract prices respond to news, data releases, or shifting sentiment can be educational in its own right — and in some cases, informative for decisions in other markets.

The bottom line

Prediction markets offer a distinct way to engage with uncertainty — one where collective judgment is expressed through prices, and where the discipline of trading requires thinking carefully about probability rather than simply about outcomes. Approached thoughtfully, they can sharpen how you think about expectations and risk. Approached carelessly, they can reinforce overconfidence and reactive decision-making. The difference lies in the approach.

Disclosure: Restrictions apply. Futures trading is not appropriate for everyone. Event contracts are offered by Moomoo Financial Inc., an FCM registered with the NFA. Not available in all states.