What is a Prediction Market?
A prediction market is a marketplace where you can trade contracts or shares based on the outcome of future events. Put simply, you can bet on your beliefs.
Cryptocurrency prediction markets offer a democratic, consensus-led platform to bet on the outcomes of things you know best, whether that’s politics, sports, economic events — anything that has a distinct outcome.
In addition to potentially making you money, prediction markets have been shown to harness the collective intelligence of participants to accurately forecast the probability of various events happening.
How do prediction markets work?
A prediction market begins with a specific event or question.
For example, "Will Candidate X win the 2024 presidential election?"
You can then buy and sell contracts based on your expectations of the event's outcome. Each contract represents a share in the possible outcomes.
What do prices mean?
The price of a contract reflects the collective belief in the probability of an event occurring. ie it’s “market prices as probabilities”.
If a contract for Candidate X winning is priced at $0.60, it implies a 60% chance of that outcome.
How do I make money?
Find bets where you disagree with the current odds. Then bet on your beliefs. When the event concludes, the market is settled.
Contracts that correctly predict the outcome are paid out at a value of $1 each, while incorrect contracts expire worthless.
For our political example, if you buy in at 60c (60% probability) and your candidate does indeed win, then you collect the profit between 60c and a dollar. You will paid out in coins or tokens.
How accurate are the odds?
Studies have demonstrated that prediction markets tend to be significantly more accurate than polls and pundits.
Traders in these markets aggregate all available information, including news, polls, and expert opinions, to make informed trades.
Economic incentives ensure that as more knowledgeable traders join, the market prices (probabilities) adjust to more accurately reflect the true current odds. In prediction markets, the crowd is more likely right than wrong.
A word of caution: while often accurate, prediction markets can also be incorrect due to lack of insider information or unpredictable macro events.
Learn more about Backpack
Exchange | Wallet | Twitter | Discord
Disclaimer: This content is presented to you on an “as is” basis for general information and educational purposes only, without representation or warranty of any kind. It should not be construed as financial, legal or other professional advice, nor is it intended to recommend the purchase of any specific product or service. You should seek your own advice from appropriate professional advisors. Where the article is contributed by a third party contributor, please note that those views expressed belong to the third party contributor, and do not necessarily reflect those of Backpack. Please read our full disclaimer for further details. Digital asset prices can be volatile. The value of your investment may go down or up and you may not get back the amount invested. You are solely responsible for your investment decisions and Backpack is not liable for any losses you may incur. This material should not be construed as financial, legal or other professional advice.
