How prediction markets work¶
A prediction market lets people trade on the outcome of a future event. The trading itself does something useful: it produces a live, money-backed estimate of how likely the outcome is.
Shares pay $1 or $0¶
Every market is built from YES/NO shares:
- A YES share pays $1.00 if the event happens, $0.00 if it doesn't.
- A NO share pays $1.00 if the event doesn't happen, $0.00 if it does.
Because a share is worth at most $1.00, it always trades somewhere between 0¢ and 100¢.
Price = probability¶
The price of a YES share is the market's estimate of the probability:
| YES price | The market thinks… |
|---|---|
| 10¢ | ~10% chance it happens |
| 50¢ | a coin flip |
| 85¢ | ~85% chance it happens |
YES and NO always add up to $1.00. If YES is 70¢, then NO is 30¢ — buying NO is just betting the other side.
Where your profit comes from¶
You make money two ways:
- Hold to settlement. Buy a YES share at 60¢. If the event happens, it redeems for $1.00 — a 40¢ profit per share.
- Sell early when the price moves. Buy at 60¢, the news shifts sentiment, and the price climbs to 80¢. Sell now and pocket 20¢ per share without waiting for the event to finish.
Your maximum loss per share is what you paid — if you bought at 60¢ and lose, you lose 60¢, never more.
A worked example
You buy 100 YES shares of "Will it rain in NYC tomorrow?" at 40¢.
- Total cost: 100 × $0.40 = $40 (plus a small fee).
- If it rains: each share redeems for $1.00 → $100 back → +$60 profit.
- If it stays dry: the shares are worth $0 → you lose your $40.
- If, before tomorrow, the forecast worsens and YES rises to 65¢, you can sell all 100 shares for $65 and walk away with +$25 right now.
The order book¶
Parti runs a central limit order book (CLOB), the same mechanism used by stock exchanges. Buyers post the prices they're willing to pay; sellers post the prices they'll accept. When the two cross, a trade happens.
- A market order ("Buy" / "Sell" at the going rate) fills immediately against the best available prices.
- A limit order lets you name your price and wait for someone to take it.
You don't need to understand the order book to trade — tapping Buy does the right thing — but it's there if you want fine control. See Trading.
Multi-outcome events¶
Some events have more than two outcomes — "Who wins the championship?" with twelve teams, or a three-way team / draw / team match. Parti models these as a set of independent YES/NO markets, one per outcome. You trade each outcome on its own, exactly like a simple yes/no market.
Next: Deposits & withdrawals →