# Prediction market

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Canonical: https://novigapi.com/learn/prediction-market

A prediction market is an exchange where people trade contracts on future events, and contract prices act as crowd estimates of each event's probability.

A prediction market lets traders buy and sell contracts whose payoff depends on a future event: an election, an economic number, or a sports result. Each contract pays a fixed amount if its outcome happens, so its price reads directly as a probability. A contract at 62 cents says the market thinks the event is 62% likely. Because traders profit from correcting wrong prices, prediction markets are often well calibrated on events with many active traders.

## How it works

Traders post bids and offers on an order book, and trades happen when a buyer and seller agree on a price. There is no house setting odds and taking the other side. Platforms earn money from trading fees instead of a built-in margin. In the United States, sports prediction markets operate as designated contract markets regulated by the Commodity Futures Trading Commission, which is why their products are framed as event contracts rather than bets.

## Worked example: reading prices

Prediction market prices as probabilities and odds

| Contract price | Implied probability | American odds | Decimal odds | Profit per $100 staked |
| --- | --- | --- | --- | --- |
| $0.25 | 25% | +300.0 | 4.000 | $300.00 |
| $0.40 | 40% | +150.0 | 2.500 | $150.00 |
| $0.50 | 50% | +100.0 | 2.000 | $100.00 |
| $0.62 | 62% | -163.2 | 1.613 | $61.29 |
| $0.80 | 80% | -400.0 | 1.250 | $25.00 |


Profit per $100 is $100 x (1 - price) / price before fees: at $0.40 you buy 250 contracts that pay $250, a $150 profit. The [odds converter](https://novigapi.com/odds-converter) converts between all of these formats.

## On Novig

Novig is a sports prediction market. Its prices are shown as percentages, its book holds bids only, and it charges a taker fee rather than a margin: 0.06 x P x (1 - P) per $1 of payout, which on game markets applies only while the event is live, per [Novig trading fees](https://docs.novig.com/api/concepts/fees) (checked 12 Nov 2026). Novig has an official trading API at docs.novig.com, which needs an account and signed requests, and it publishes free daily CSVs at data.novig.com. novigapi.com is an independent, read-only data layer on top: no account, names resolved, intraday line history, fair prices and alerts.

## Prediction markets and sportsbooks

- Pricing: a sportsbook sets the odds; a prediction market's prices come from traders.
- Cost: a sportsbook's cost is the vig built into prices; a prediction market's is the spread plus an explicit fee.
- Exit: prediction market contracts can usually be sold before settlement.
- Limits: exchanges match traders against each other, so winning traders are less likely to be limited for winning.

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