Prediction markets often forecast events better than experts or polling firms. They are not risk-free, though, especially for people who do not understand how they work.
What are prediction markets?
On these sites, users buy "yes" or "no" contracts tied to future real-world events. If the event occurs, the contract pays £1; if it does not, it pays £0. The price reflects the market's implied probability.
Kalshi and Polymarket now dominate the market. They launched around the pandemic, then drew broad public attention during the 2024 US presidential race. In the week before the election, Kalshi handled roughly £750 million in trades.
Bookmakers set the odds and take the other side of each wager. Prediction markets work differently: punters trade with one another, betting on questions such as how many acres wildfires will destroy, how often Donald Trump will say "Kamala" in a speech, or whether Jesus Christ will return this year.
Kalshi's valuation has reached £22 billion - four times higher than it was less than a year ago - and the platform now carries more than 10,000 live markets. Sports still account for about 78% of its volume.
Are prediction markets new?
Not really. Americans have wagered on elections since George Washington's time. The New York Stock Exchange banned election markets during Prohibition, when underground gambling was widespread, and polls eventually took over as the main forecasting tool. In 1988, the University of Iowa created the first serious election market; it went on to predict future results more accurately than Gallup. PredictIt, a non-profit, arrived in 2014. Now that polling is in crisis, prediction markets have returned.
Who uses prediction markets?
The BBC reports that prediction markets are used mostly by young men. Betterment, a US financial adviser, found that 52% of Gen Z investors put money meant for investments into sports betting last year. Companies reach this audience through celebrity partnerships and social-media accounts.
Some platforms have tried to attract women, who are generally viewed as more cautious and sceptical, by hiring female "finfluencers," holding events in person and promoting bets on subjects such as pop culture. Kalshi told the BBC that women made up 13% of its users in early 2025, rising to 26% by early this year.
This is more than a passing fad. Shayne Coplan, who runs Polymarket, describes it as a "global truth machine," echoing Friedrich Hayek's view that markets can pool scattered local and tacit knowledge more effectively than any planner. A Morgan Stanley study published in August found that Kalshi predicted CPI inflation more accurately than the economist consensus forecasts compiled by Bloomberg.
Kalshi has turned crowd-based forecasting into deals with CNBC, CNN, and AP. This year, Polymarket announced partnerships with Dow Jones and Substack.
Are people making money from prediction markets?
Their founders say these platforms are fairer than traditional bookmakers because they have no "house edge." In August, Polymarket and Kalshi averaged roughly £1.6 billion in daily trading between them - nearly 2,000% more than a year earlier. Turning that activity into a profit is harder.
A June study from the Centre for Economic Policy Research found that two-thirds of Polymarket users lost money. Just 1% of profitable traders took more than three-quarters of all profits, and 0.1% claimed half of them. The Wall Street Journal reported in May that fewer than 2,000 accounts received nearly half a billion dollars; last year, the median loss was £94.
Jane McManus argues in The Guardian that the system works this way by design: markets depend on "dumb money" users to provide liquidity and mispriced odds, while professionals - and, increasingly, AI tools - collect most of the profits as "smart money."
Why do people still use prediction markets?
Convenience is a big part of the appeal. They run around the clock, require little money to enter, and return feedback quickly. Users can also leave a position without much difficulty; with AI tools at hand, they can study the markets themselves.
Other explanations exist. Some experts point to younger users' still-developing prefrontal cortex and their stronger appetite for risk. Others describe "financial nihilism" - the belief that prudence and long-term planning no longer pay off because traditional routes to wealth and stability have been closed.
According to market researchers at The Harris Poll, nearly two-thirds of Gen Z and millennials believe gambling or cryptocurrency may be their only path to building wealth today.
Aren't prediction markets illegal?
The answer depends on how they're classified. In the US, the Commodity Futures Trading Commission (CFTC) regulates prediction markets as derivatives rather than gambling. That classification allows them to avoid state bans on sports wagering, and influencers paid by the platforms do not have to mention the risks. Kalshi and Polymarket both emerged after the Supreme Court struck down the federal sports-betting ban in 2018.
The Economist says Donald Trump's CFTC has shifted from "watchdog to cheerleader." Trump wants prediction markets to grow, while his son, Donald Jr, advises Polymarket and owns stakes in both platforms. Europe takes a harder line: across the continent, these platforms are mostly unauthorised, and the EU's markets regulator has warned about significant risks and insider trading.
And in the UK?
Since 2019, UK customers have been unable to use the kind of binary options offered by Kalshi and Polymarket: the Financial Conduct Authority (FCA) barred them and regulates prediction markets tied to financial or certain climatic events.
The Gambling Commission handles political and sporting outcomes. It describes these markets as "akin to" betting exchanges, which Britain has permitted since 2000. Betfair, Matchbook and Smarkets are the legal versions.
Some Britons are using VPNs to get around the rules and place binary bets on by-elections and other events through Kalshi and Polymarket. That could soon change. According to the Financial Times, both platforms have started a "lobbying blitz" as they seek regulation as financial services. The FCA is weighing changes to its rules.
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