What Are Prediction Markets?

Prediction markets are exchanges where you trade contracts based on the outcome of real-world events. Unlike traditional futures (which are priced by supply/demand dynamics), prediction market contracts resolve to a binary outcome: $1 if the event occurs, $0 if it doesn't.

This means a YES contract priced at $0.65 implies a 65% implied probability of the event happening. If the event occurs, you profit $0.35 per contract. If not, you lose $0.65.

The Major Platforms

  • Polymarket: On-chain resolution via UMA Oracle, $800M+ monthly volume, crypto-native
  • Kalshi: CFTC-regulated, US-based, traditional finance settlement
  • Manifold: Play-money with real reputation, good for calibrating probability assessments
  • Metaculus: Community-calibrated probabilities, research-focused

Why Prediction Markets Are Attractive

  • Binary risk/reward: You know your max loss before entering a trade
  • Information advantage: If you know more about a topic than the market, you can profit
  • Low correlation: Most prediction markets have zero correlation to crypto/stock markets
  • Efficient markets: Large, active markets like Polymarket tend toward accurate probabilities

How Telos Scans for Opportunities

Telos's Prediction Market Scanner monitors 11 platforms simultaneously, looking for three types of opportunities:

  1. Value bets: Markets where the AI's probability estimate differs from the market price by more than 10%
  2. Cross-platform arbitrage: Same event traded on multiple platforms at different prices
  3. Event catalysts: Upcoming scheduled events (FOMC meetings, earnings reports, elections) where the market may misprice

Risk Management for Prediction Markets

Prediction markets have unique risk characteristics. Learn more about risk management in automated trading and how Telos's four-layer risk gate system applies to prediction market positions:

  • Max loss is capped — You can only lose what you put in
  • Binary outcome — No partial losses, it's win or lose
  • Liquidity varies — Smaller markets may have wide spreads
  • Resolution risk — Some events may be ambiguous (Was the outcome "before Q1" or "in Q1"?)