LearnNo experience needed · 4-minute read

How prediction markets actually work.

Before you follow a bot or build one, here's the whole game in four diagrams — markets, brackets, pricing, and settlement.

01What's a market? 02Brackets 03Price = probability 04Settlement
01 / THE BASICS

A market is a question you can bet on.

Every prediction market is a yes-or-no question about the real world: "Will it rain in Boston on Monday?" Each question has two sides — YES and NO — and each side is a contract that trades between 0¢ and 100¢.

Buy the side you believe. If you're right when the question resolves, your contract pays out 100¢ ($1). If you're wrong, it's worth 0¢.

Will it rain in Boston on Monday? YES buy at 22¢ 22¢ NO buy at 78¢ 78¢ if it rains → pays $1.00 if it rains → pays $0.00 YES + NO always = 100¢
The two sides always add up to 100¢. Buy YES at 22¢, and you risk 22¢ to win 78¢.
02 / BRACKETS

Some questions have many answers — those use brackets.

"Will it rain?" is simple yes/no. But "What will Phoenix's high temperature be today?" has a whole range of answers. So the exchange slices the range into brackets — each a narrow band, each its own YES/NO market.

Only one bracket can win. As the day's real high firms up, brackets that are now impossible drop to ~0¢, and the live ones split the probability between them.

Phoenix high temp today · KXHIGHTPHX 101–103° 2¢ 103–105° 38¢ MOST LIKELY 105–107° 52¢ 107–109° · 8¢ 109–111° · 0¢ observed so far: 106°
Each bracket is its own market. The live brackets share the probability; impossible ones sit at ~0¢.
This is exactly what WX Lookup shows you in real time — which brackets are still alive given the observed temperature and the rest of the day's forecast.
03 / PRICING

The price is the probability.

Here's the key insight: a contract's price is the crowd's estimate of the odds. A YES trading at 65¢ means the market thinks there's about a 65% chance the answer is YES.

That's why bots look for mispriced contracts — when they believe the true probability differs from the price, that gap is the edge. Drag the slider:

YES price 42¢
Implied chance of YES
42%
…so NO costs
58¢
Risk 42¢ to win 58¢ if YES happens — a 1.4× payout.
Cheap ≠ good. A 5¢ contract pays 20× — but only wins 1 time in 20 if priced fairly. Bots profit by finding cases where the real odds beat the price, not by chasing big payouts.
04 / SETTLEMENT

When the event happens, the market settles.

Every market names an official source of truth up front. When the event resolves, that source decides the outcome — winning contracts pay $1, losing ones pay $0. No ambiguity, no judgment calls.

Opens trading starts Trades price moves w/ odds Locks outcome known Settles $1 or $0
From open to settlement — the lock is when the outcome is effectively decided, often before official settlement publishes.
Weather → NWS CLIKalshi temperature markets settle on the National Weather Service daily Climate Report.
Crypto/events → UMAPolymarket uses the UMA optimistic oracle — a decentralized dispute process.
Lock vs settleThe outcome is often locked (decided) hours before it officially settles (pays out).
Why it mattersKnowing the source & lock timing is the whole game for weather bots — see WX Lookup.

That's the whole game.

Now watch bots play it — or build one yourself. No real money, ever.

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