How Prediction Markets Are Organised

A prediction market is not a bookmaker with a nicer interface. It is an exchange, and almost everything that matters about trading one follows from that.

A central limit order book

Contracts trade on a central limit order book, exactly like a stock: resting bids and offers at each price from 1 to 99 cents, price-time priority, and a spread between the best bid and the best ask. Nobody sets the price; it emerges from whoever is willing to trade.

The Yes and No sides are one book viewed from two directions. A bid for Yes at 62 is the same order as an offer of No at 38, and the exchange matches them accordingly: when you buy Yes at 62 from someone buying No at 38, the two of you have jointly posted the full $1 payout between you. This is why liquidity never fragments between the two sides of the same question.

Clearing and full collateral

Trades clear through the exchange's clearing house, so you never face the person on the other side. On most regulated venues every position is fully collateralised: the exchange holds your worst-case loss in cash at the moment you trade. Buy Yes at 62 and 62 cents per contract is set aside; the No buyer posts the other 38. There is no margin call, because there is nothing left to call: the entire $1 is already in the building.

Full collateral makes the market safe and capital-hungry at the same time. Nothing can blow through a margin buffer, but tying up the whole payout is expensive relative to futures-style margin, and that cost of capital shapes which trades professionals bother with, a theme that returns in the lessons on fees and sizing.

Market makers and requests for quote

Exchanges court professional liquidity because a book of resting quotes is the product. Designated market makers typically receive reduced fees and higher position limits in exchange for quoting two-sided markets through the day. For bespoke or multi-leg risk, some venues run a request-for-quote flow: a customer describes the position, competing market makers bid to take the other side, and the winner posts collateral like anyone else.

Fees and resolution

Exchanges charge per-contract fees, usually structured so that trading at mid-range prices costs the most and trading near the extremes costs almost nothing, in proportion to how much uncertainty is being transferred. The exact schedules change; the shape matters for where quoting is profitable, and the expected-value lesson works through it properly.

Every market also names a resolution source and a rule: the specific data release, official record or observable fact that decides the outcome, and the deadline it is judged at. The rule, not the headline description, is the contract. The risk section returns to what happens when the two diverge.