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A prediction market is a place where you buy and sell shares in the outcome of a future event. Each share represents a claim on whether something will happen. If you’re right at the time the event resolves, your share is worth 1 USDC. If you’re wrong, it’s worth 0. What makes prediction markets useful is what the price tells you in between.

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Prices are probabilities

The price of a YES share is the market’s collective estimate of how likely the event is to happen. A YES at 40 cents means buyers and sellers, on net, are pricing the event at 40% likely. If you think the true probability is higher than 40%, you buy YES. If you think it’s lower than 40%, you buy NO. It’s the same logic as any probability statement: a price of 60 cents means 60% likely, the same way a weather forecast says there’s a 60% chance of rain.

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Outcome prices add up to 1

Every market has at least two possible outcomes. Binary markets have two (YES and NO, or UP and DOWN). Multi-outcome markets have more, like an election with three candidates or a tournament with multiple teams. Whatever the number of outcomes, the prices for all of them sum to approximately 1 USDC at any time the market is open. If a binary market has YES at 40 cents, NO will be at about 60 cents. If a four-outcome market has tokens at 30, 25, 25, and 20 cents, those sum to 100 cents (which equals 1 USDC). This is what makes it a coherent system: every outcome has a price, every price is a probability, and the probabilities have to sum to 100%. You don’t need to think about the math every time you trade. Pick the outcome you think will happen and put your order in.

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You don’t have to wait for settlement

You’re not locked into a position once you open it. As long as the market is open and someone is willing to take the other side, you can sell at whatever the current market price is. If you bought YES at 40 cents and the price has moved to 60 cents because the event now looks more likely, you can sell at 60 cents and lock in the gain without waiting for settlement. Likewise, if the price has moved against you, you can sell at a loss to free up capital instead of riding the position to expiry.

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Why prices move

Prices in a prediction market move when new information changes how likely the event looks. A market on “will the central bank cut rates this month” will react to economic data releases, statements from policymakers, and shifts in related markets. A BTC binary will react to spot price moves. If you have a view that’s better than what the market is currently pricing, either because you have better information or because you think the market is overreacting, that’s the trade. If you’re consistently right, you make money. If you’re consistently wrong, you don’t. For more on how markets are structured, what makes prices coherent, and how settlement works, see How markets work.