Prediction Market
A market where participants trade on the probability of a future event, with prices that reflect crowd-estimated likelihood.
Definition
A prediction market is a financial market structured around the probability of a future real-world event. Contracts pay out $1 if the event occurs and $0 if it does not. The market price of a contract therefore represents the market-implied probability of that event. Prediction markets aggregate dispersed information from many traders into a single probability estimate.
In practice
On Polymarket, each "question" becomes a binary market with YES and NO outcome tokens. If BTC closes above $100,000 on a given date, YES tokens pay $1 and NO tokens pay $0. A bot buying YES at $0.40 is effectively betting that the true probability is higher than 40%. The edge is the difference between the bot's estimated probability and the market price, and Kelly criterion sizing determines how much capital to allocate per trade.