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This is chapter one of Learn Trading. It explains what a prediction market is, how a share price relates to probability, and how you actually make or lose money — no prior trading experience assumed.

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The Big Idea

A prediction market lets you trade on the outcome of real-world events. Think of it like a stock market, but instead of buying shares of a company, you’re buying shares of an outcome happening.
“Will it rain tomorrow?” “Will Team A win the championship?” “Will the next iPhone have USB-C?”
Every question has two sides: Yes and No.

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Shares and Prices

Each share is priced between 0.00∗∗and∗∗0.00** and **1.00. The price of a share reflects the crowd’s belief in how likely that outcome is. A Yes share priced at $0.70 means the market thinks there’s roughly a 70% chance it happens.

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How You Make Money

When the event resolves, every share settles to either 1.00∗∗(ithappened)or∗∗1.00** (it happened) or **0.00 (it didn’t). Example: You think it’s going to rain tomorrow, but the market says there’s only a 30% chance (Yes shares cost $0.30).
  • You buy 10 Yes shares for **0.30each∗∗=0.30 each** = 3.00 total
  • It rains! Each share is now worth $1.00
  • You get 10.00∗∗back.Profit:∗∗10.00** back. Profit: **7.00
If it doesn’t rain, your shares go to 0.00andyoulosethe0.00 and you lose the 3.00.

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Yes and No — Two Sides of Every Market

For every market, you can buy Yes shares or No shares. They always add up to $1.00. Buying No at 0.30isthesameassaying"Idon′tthinkthiswillhappen."Iftheeventdoesn′thappen,yourNosharessettleto0.30 is the same as saying "I don't think this will happen." If the event doesn't happen, your No shares settle to 1.00.

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You Don’t Have to Wait

You can sell your shares at any time before the market resolves. If you bought Yes at 0.30andthepricemovesto0.30 and the price moves to 0.60, you can sell and pocket the difference without waiting for the outcome. Confused monkey staring at trading screens

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Why Do People Trade?

  • You think the market is wrong. If you believe something is more likely than the price suggests, you buy.
  • You want to hedge. If rain would ruin your outdoor event, buying Yes on rain acts like insurance.
  • You follow the news. New information moves prices. Fast traders profit from being early.

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Key Takeaway

Prediction markets are just questions turned into tradeable prices. If you have an opinion about the future, you can put it to work. Next: The Order Book — where those prices actually come from.