What Is Prediction Market Event Trading?
The starting point of this guide is to understand what event predictions are and how it works. This is the act of predicting a variety of real-world events, such as sports, politics, economics, culture, climate, crypto, and more. To do this, you’ll need to find a popular prediction market site to deposit at. You’ll then need to locate an event you want to predict, and purchase either “Yes” or “No” shares in the outcome you believe will occur.
Each share is priced between $0.01 and $0.99, which also determines the implied probability of the outcome occurring.
If you hold shares in the correctly predicted outcome when the event concludes, you’ll receive a $1 payout, or nothing if you predicted incorrectly. However, at any point in the lead-up to the event, the price of shares can move as market sentiment changes. This presents an opportunity to ‘trade’ shares by buying or selling your position.
Pros and Cons of Prediction Market Sites
Is it worth it to get into prediction market sites? Here are the upsides and downsides to look into:
Pros
- Simple trading structure
- Heavily regulated in the US
- Short and long-term markets
- Low barrier to entry
Cons
- Trading fees and additional costs
What Are the Different Types of Prediction Market Charges?
The type of fees that you might find at one prediction market site might look different from those of a competing platform. This is something I noticed during a recent comparison of Kalshi vs Robinhood. That said, these are some of the most common costs of trading predictions:
Trading Fees
Trading fees are the most obvious and common cost of prediction market trading, and occur every time you buy or sell shares in an event contract. This is typically a percentage-based fee ranging between 0.25% to 2% of the total trade amount. However, some sites may impose a fixed dollar amount instead of a percentage-based fee, and in some cases, a brand may choose not to impose any trading fees at all.
If you tend to buy and hold your event contracts until the event concludes, these fees have a small impact. But for traders who are actively moving in and out of positions, these trading fees can have a more significant impact. This is especially true if you’re trading to make a small profit margin, as trading fees can quickly eat into profit.
Settlement Fees
Settlement fees are charged when the event concludes and the market resolves. Typically, they’re applied to event trades and subtract a small percentage or fixed fee. Importantly, this settlement fee is not usually considered for incorrectly predicted markets or positions you have closed early through selling shares. Additionally, settlement fees are less common than trading fees, although they still have a significant impact on potential profits.
Deposit and Withdrawal Fees
When you fund your account, some prediction market sites will apply a deposit fee, which cuts into the amount you can spend on event contracts. Similarly, some of these platforms will also apply a withdrawal fee.
In both situations, this fee is usually applied as a percentage of the total deposit or withdrawal. However, this usually varies depending on your chosen payment method. For example, debit cards could be fee-free, while e-wallet payments could impose a 2% transaction fee. It’s also common for platforms to apply different fees to deposits and withdrawals, even when using the same payment method.
Currency Conversion Fees
Currency conversion fees can apply if you deposit or withdraw using a currency that differs from the prediction market site’s base currency. This isn’t usually an issue since most prediction market sites operate exclusively in the United States with USD as their base currency. However, it’s something to keep in mind as a potential cost of event trading if you want to deposit or withdraw with foreign currencies such as GBP, CAD, AUS or others.
Real-world Example of Prediction Market Costs
I’ve always felt that the best way to see the impact of different prediction market costs is through real-world examples. The table below outlines the cost implications of the fees previously listed in this guide:
| Details | Platform fee | Cost implications |
| Deposit fee | 1% | $0.10 charge on a $10 deposit |
| Trading fee | 2% | $0.20 fee on a $10 trade |
| Settlement fee | 0.50% | $0.05 fee when settling a $10 position |
| Withdrawal fee | 2.50% | $0.25 charge on a $10 withdrawal |
Why Does the Cost of Event Trading Matter?
If there’s one thing the prediction markets and trading on sports events share in common, it’s that additional costs and fees can eat into any potential profits you may have accumulated. Whether it be trading fees, settlement fees, or any other type of transactional fee, they can all add up. This is especially true if you’re a frequent trader, as these costs will only compound further with time.
This only highlights how important it is to review the fee structures across popular prediction market sites. The best platforms typically have low or zero fees, ensuring you’re getting the best value out of every deposit, trade, and withdrawal.
Two Hidden Costs You Might Not Even Notice When Trading Event Predictions
I’ve mentioned some of the most obvious costs of event trading, and these fees are usually clearly advertised at the various prediction market sites. But there are some costs that aren’t frequently discussed. Let’s take a closer look:
1. Opportunity Cost
One of the less obvious costs of trading event predictions is opportunity cost. This isn’t a fee you pay directly, but it’s the potential profit you forfeit by having your funds tied up in positions that are locked until the event resolves. For example, if you invest in a prediction market that won’t settle for a week, that money isn’t going to be available for other trades you might want to consider.
If you’ve learnt how to read market prices properly, this can be an even bigger problem, as you’ll probably spot plenty of alternative opportunities while waiting for your event to settle. And even if your original prediction ends up being correct, the delayed access to your funds can still impact overall profits.
2. Taxes on Withdrawal
Another hidden cost that many new traders overlook until it’s too late is taxes on profitable withdrawals. This is also a cost that you’ll need to deal with yourself, as taxes are not automatically deducted by the platform from your profitable trades. Additionally, the taxes you owe will usually vary depending on your jurisdiction, with a wide variety of rules to consider. For this reason, it might be a good idea to consult a tax professional before submitting any tax returns that include prediction market profits.
Are the Costs of Event Trading Actually Worth It?
Don’t let the hidden costs of event trading put you off from visiting the top prediction market sites. While fees can be imposed on trades, settled events, deposits, withdrawals, and various other transactions, they’re usually small and manageable. This is especially true if you choose a reputable platform that offers low or zero fees. That said, you’ll still need to consider other factors like opportunity costs and taxes on profitable withdrawals.
Want to join the action and start predicting real-world events yourself? Take a look at the promotional banners on this page for some of the best prediction market sites to join.
