How Do Prediction Markets Work? UK Guide 2026

A complete walkthrough: binary outcomes, pricing mechanics, USDC settlement, and how to read a prediction market price as a probability.

The Core Concept: Trading Probabilities

A prediction market lets you trade on whether a real-world event will happen or not. Every market has a binary outcome: YES or NO. YES shares pay $1.00 (1 USDC) if the event happens, and $0.00 if it does not. NO shares pay $1.00 if the event does not happen.

The price of a YES share is always between $0.00 and $1.00, and it directly represents the market’s implied probability. A YES share trading at $0.65 means traders collectively estimate a 65% chance of the event occurring.

Reading a Price as a Probability

If you believe the true probability is higher than the current market price, buying YES is profitable in expectation. If you believe the probability is lower, buying NO (at $1.00 minus the YES price) is profitable in expectation. This is the fundamental trading decision.

Binary Market Structure

Most prediction markets use a binary YES/NO structure. Every valid market has two complementary positions:

• YES: pays $1.00 if event resolves YES, $0.00 if NO
• NO: pays $1.00 if event resolves NO, $0.00 if YES

YES price + NO price always equals $1.00 (minus a small spread). If YES is at $0.72, NO is at approximately $0.28. A trader who buys both YES and NO in a correctly priced market would pay approximately $1.00 and receive $1.00 at resolution — a wash (before fees).

How Pricing Works: CLOB and AMM

There are two main mechanisms for setting prices in prediction markets.

Central Limit Order Book (CLOB)

Polymarket (and by extension PolyGram) uses a CLOB — the same mechanism used in traditional stock markets and crypto exchanges. Buyers post limit orders at the price they are willing to pay. Sellers post limit orders at the price they are willing to accept. When a buyer’s bid matches a seller’s ask, a trade executes.

The CLOB produces continuous price discovery based on actual supply and demand. Tight bid-ask spreads on liquid markets mean you can enter and exit positions efficiently. On Polymarket, the spread on a major political market might be 0.5 cents ($0.005) — extremely competitive for a prediction market.

Automated Market Maker (AMM)

Some smaller prediction markets use Automated Market Makers — algorithmic price-setting based on a mathematical formula. The most common is the Logarithmic Market Scoring Rule (LMSR), developed by economist Robin Hanson. In an LMSR market, the price automatically adjusts as traders buy YES or NO shares, moving in the direction of buying pressure. There is always liquidity available, but the price impact of large trades is higher than on a deep CLOB.

Example Trade Walkthrough

Here is a complete example of a prediction market trade on PolyGram.

1. You buy 100 YES shares at $0.68. Total cost: $68.00 USDC. (Plus ~$0.80 taker fee at 1.2%)
2. Scenario A — Event occurs (BoE cuts rates): Your 100 YES shares settle at $1.00 each = $100.00. Profit: $100.00 − $68.80 = $31.20
3. Scenario B — Event does not occur (BoE holds): Your 100 YES shares settle at $0.00. Loss: $68.80
4. Scenario C — You sell before resolution: If the market moves to $0.78 after fresh BoE commentary, you can sell your 100 shares for $78.00. Profit: $78.00 − $68.80 − ~$0.94 sell fee = ~$8.26 (before tax)

How Prediction Markets Differ from Sports Betting Odds

USDC Settlement — End to End

All major real-money prediction markets settle in USDC, a dollar-pegged stablecoin. Here is the settlement flow when a market resolves:

1. The oracle (UMA Protocol on Polymarket/PolyGram) confirms the outcome.
2. Smart contracts automatically distribute USDC to winning position holders: $1.00 per winning share.
3. The USDC appears in your prediction market wallet balance, typically within minutes of resolution.
4. You can immediately use the USDC to enter new markets or withdraw to an exchange.

Because settlement is fully automated by smart contracts, there is no manual withdrawal request process for winnings. You simply watch your balance update and decide what to do next.

Getting Started: First Trade Checklist

1. Create an account on PolyGram (polygram.ink)
2. Purchase USDC on a UK-regulated exchange (Coinbase, Kraken, Binance UK) via bank transfer
3. Send USDC to your PolyGram wallet address on the Polygon network
4. Browse markets, find one where you have an informed view
5. Start with a small position ($5–$20) to understand the mechanics before committing larger amounts
6. Monitor the market and decide whether to hold to resolution or trade out early

Frequently Asked Questions