The Rise of Prediction Markets: How Kalshi Allows You to Trade Real Events Directly

Recently, everyone has been closely watching the movements of the Federal Reserve meetings, waiting for interest rate adjustments. Economic data, inflation numbers, and Powell's wording all suggest that this moment is approaching.

But how can this judgment be translated into actual trading?

The traditional approach is to buy bonds, expecting the bonds to rise when interest rates fall; to short the dollar, hoping the correlation remains stable; or to heavily invest in interest-sensitive tech stocks, anticipating that the market interprets the news as expected.

However, what if you could directly trade the outcomes of the Federal Reserve's decisions? Instead of playing these indirect "derivative games," you could directly bet on whether "the Federal Reserve will lower interest rates at the next meeting." If you guess correctly, you could earn 1 dollar for each contract.

Similarly, in the sports betting field, you can directly bet on whether Coco Gauff will win the Australian Open championship, rather than buying stocks of related sports brands. In the entertainment industry, you can directly bet on whether Roman Reigns can retain his championship title, rather than investing in stocks of related media companies.

This is exactly what a prediction market platform can allow you to do.

It is the first prediction market regulated by the Commodity Futures Trading Commission (CFTC) in the United States, where you can directly trade the outcomes of real-world events—not stocks influenced by the events, not currencies that may fluctuate due to news, but the events themselves.

Make Your Predictions Valuable

Federal Reserve decisions, election outcomes, Supreme Court rulings, Bitcoin price trends, inflation expectations, sports event results... As long as you can form an opinion and there are objective measurement standards for the outcomes, there may be corresponding trading opportunities in the prediction market.

A certain cryptocurrency prediction platform pioneered the concept of modern prediction markets, handling billions of dollars in transaction volume during the U.S. elections, demonstrating the huge demand for the market. Meanwhile, the regulated prediction platform has just raised $185 million at a valuation of $2 billion, with large trading firms providing liquidity, and a well-known retail trading platform directly integrating its market into its own platform, allowing millions of retail traders to participate. An artificial intelligence project by a well-known tech entrepreneur even embedded its trading interface.

This is a regulated, institutional-grade "trading reality" infrastructure. Based on a global layout, it brings the prediction market into the regulated U.S. financial system.

This means that for the first time you can directly monetize the advantages of predicting real-world events, without having to bear the frictions of traditional financial markets—no complex derivatives, no counterparty risk, and no worries about whether your hedging tools are actually effective when the event happens.

If you think the next non-farm report will be surprising, there are corresponding markets; if you believe a certain candidate will win the upcoming election, you can trade related contracts now; if you are confident that artificial intelligence companies will dominate the next decade, you can bet on specific milestones and regulatory outcomes that will determine their fate.

This platform transforms every piece of non-public information, every analytical advantage, and every evidence-based prediction into potential profit opportunities. Unlike traditional markets that arbitrage information advantages through complex strategies, prediction markets directly reward knowledge.

How Prediction Markets Work

Understanding the mechanics of prediction markets is crucial, as the way event contracts operate is different from any financial instrument you have traded before. We will explain it step by step using a specific example.

Step 1: Account Setup and Deposit

Create an account on the platform and complete the necessary identity verification (KYC). Due to CFTC regulations, you need to provide standard documents such as identification, proof of address, etc.

There are various options available for deposits, with different limits and processing speeds: bank transfers are free but take 1-2 business days; debit cards provide instant deposits but incur a 2% fee, with a daily limit of $2,500; cryptocurrency users can deposit USDC, with a daily limit of $500,000 and processing within 30 minutes; wire transfers are suitable for large amounts but have minimum requirements.

Step 2: Understand market pricing

Enter any market to view the current pricing structure. Taking the market "Will Bitcoin reach $150,000 before 2026" as an example: currently, the "Yes" contract is quoted at 44 cents, and the "No" contract at 59 cents, which means the market believes the probability of this event occurring is 44%.

The interface will clearly display potential earnings: if you buy the "yes" contract at 44 cents and Bitcoin really rises to $150,000, you can earn $1 for each contract, making a profit of 56 cents per contract; if it doesn't rise, the contract will expire worthless.

Step 3: Place Order

Select to buy "Yes" or "No" contracts, enter the amount (minimum $1), and the platform will automatically calculate how many contracts you can buy and the maximum profit.

Take the example of Bitcoin: buying a "yes" contract for $1 at 44 cents allows you to purchase approximately 2.27 shares. If you guess correctly, you can receive $2.27, making a profit of $1.27. The calculation process is transparent before confirming the trade.

The brilliance of this model lies in its simplicity: your maximum loss is the purchase cost, and the maximum profit is $1 per share minus the purchase price, with no additional margin calls, no complex Greek letters, and no overnight financing costs.

Step 4: Multiple Time Frames

Many markets offer contracts with different time frames for the same event. The market for Bitcoin at $150,000 has options such as "before August" (current probability <1%), "before October" (18% probability), and "before 2026" (43% probability).

Each time frame of trading is independent. If you think Bitcoin will reach $150,000 next year, you can buy the "yes" contract that expires in 2026 while selling the "yes" contract that expires in August.

Step 5: Monitoring and Closing

You do not have to hold until maturity; the contract price will fluctuate in real-time according to news and market sentiment. The platform displays real-time price charts, allowing you to track probability changes.

If major news suddenly impacts your position, you can sell immediately. For example, if you bought a Bitcoin "is" contract at 44 cents, and positive news drives the price up to 60 cents, you can sell immediately, making 16 cents per contract without waiting for the final result.

Closing operations are smooth: you can place a market order (trade immediately at the current price) or a limit order (wait for the target price), and potential profits and losses will be displayed before confirming the trade. Settlement is automatically completed through preset data sources—no disputes, no room for interpretation, just looking at the data.

Position limits can prevent a single trader from manipulating the market. Most retail investors can trade a maximum of $25,000 per contract, while institutional traders enjoy higher limits. Fees are charged at 0.7%-3.5% of the contract value, depending on market probabilities, with contracts close to a 50/50 odds having higher fees than extremely unpopular contracts.

Market Classification and Discovery

Prediction markets divide the market into several categories: politics, sports, economy, cryptocurrency, climate, etc. Popular sectors highlight markets with high activity or recent price volatility.

The platform also has a "Views" section where users discuss market analysis and share trading logic. This community aspect helps you discover new markets and understand different perspectives on event probabilities.

For active traders, the platform provides API interfaces that support algorithmic trading and data analysis: you can access historical price data, automate orders, and integrate prediction markets into broader trading strategies.

The platform also provides detailed trading volume and open interest data for each contract, helping you assess liquidity before making large transactions.

Its brilliance lies in simplicity: no complex derivatives, no leverage, counterparty risk is limited to the exchange itself, only a pure information market, with transparent and regulated settlements.

Investment managers use prediction markets to hedge specific event risks that traditional tools find difficult to cover efficiently: a clean energy fund concerned about regulatory changes can directly trade policy outcome contracts to hedge; a portfolio heavily invested in technology stocks can hedge the risks of antitrust actions by trading relevant legal markets.

If you hold assets worth 1 million dollars, a specific policy change could reduce it by 20%. Spending 50,000 dollars to buy a hedge contract with a 25% probability means that if the event occurs, you can receive 200,000 dollars, which perfectly offsets the loss in your portfolio.

Traders with expertise can directly monetize their knowledge: political insiders trade election markets, economic analysts trade Federal Reserve decision contracts, and industry experts trade regulatory outcome markets. Unlike the stock market—where information advantages can be quickly arbitraged through complex derivative strategies—event markets allow for excellent predictions to be directly converted into profits. Your advantage in predicting FDA approvals or Supreme Court rulings can immediately turn into trading gains.

Integration of Artificial Intelligence

Recent collaboration with an AI company has shown us the future of information trading.

The integration of AI systems provides real-time analysis of on-chain data, historical odds, and breaking news within the prediction market interface. Before placing an order, users can query the AI for event background information, probability assessments, and related data trends.

This creates a feedback loop: artificial intelligence helps traders make better predictions, and the outcomes of prediction markets can train the AI system's predictive capabilities in reality. AI is tested in real-time probability assessment, while traders gain AI-enhanced information analysis.

Its impact goes beyond individual trading decisions: as AI systems become better at processing vast amounts of information and recognizing probability patterns, prediction markets will become more efficient. This means narrower spreads, more accurate price discovery, and more practical hedging applications.

Comparison of Prediction Market Platforms

There are now two complementary leaders in the prediction market space: one has pioneered the prediction market industry with crypto-native innovation, while the other was born for Wall Street.

Core Differences

The regulated platform is fully supervised by the CFTC, with funds held in federally insured accounts. Disputes are resolved through a defined process, and all operational methods are consistent with traditional finance: recharge via bank transfer, trade in USD, and withdraw to a checking account.

The crypto platform settles using USDC and resolves disputes through decentralized prediction markets, proving the model's feasibility globally. Recently, it also obtained the appropriate license in the United States and is preparing to expand into regulated markets.

Audience Differences

Institutional capital flows to regulated platforms because regulation brings certainty: large market makers provide liquidity, with over $1 billion in monthly trading volume proving that mainstream markets prefer compliant platforms.

The innovation of the crypto platform and its global reach have attracted crypto-native users and international traders who value decentralization and permissionless access. Its early success has validated the value of the entire prediction market category.

conclusion

For American users who prioritize regulatory protection and integration with traditional finance, the advantages of regulated platforms are evident; for global users who adapt to crypto infrastructure and recognize innovation, crypto platforms offer unique value. Both platforms promote the prediction market towards the mainstream from different perspectives, and their mutual growth reflects the demand from institutions and retail investors for this new asset class.

What Your Strategy Means

Whether you are managing a portfolio, building trading strategies, or looking to understand financial trends, the rise of the prediction market is worth paying attention to.

For portfolio managers: event contracts provide precise hedging tools that cover risks difficult to manage with traditional tools: political risk, regulatory risk, and macro event risk can now be directly hedged without relying on imperfect correlations.

For active traders: The informational advantage of predicting real-world events can be directly monetized, and your expertise in a specific area has a clear profit path.

For long-term investors: Understanding the evolution of prediction markets helps to grasp "all measurable..."