“Will inflation be above 4% when the next official figure is released?”
You are not buying shares in the economy, a company or a football club.
Instead, you are trading a contract whose value depends on whether a clearly defined event occurs.
That is the basic idea behind an event contract.
An event contract is a financial contract whose payoff depends on the outcome of a specified future event, occurrence or measurable value. The U.S. Commodity Futures Trading Commission describes event contracts as derivative contracts whose payoff can depend on outcomes such as a macroeconomic indicator, corporate earnings, snowfall or hurricane damage.
Many modern event contracts use a straightforward binary format:
YES — the event happens
or:
NO — the event does not happen
A contract might therefore ask:
Will the central bank cut interest rates before a specified date?
Will rainfall exceed a defined amount this month?
Will a particular candidate win an election?
Will an economic indicator finish above a specified level?
The answer determines how the contract settles.
This structure explains why event contracts have become closely associated with prediction markets. The CFTC describes prediction markets as markets where participants buy and sell contracts based on whether defined events occur, with prices aggregating participants’ beliefs about future outcomes.
But one distinction is essential from the beginning:
The event contract is the product being traded. A prediction market is the market or platform through which those contracts may be traded.
Understanding that distinction makes the rest of the subject much easier.
Event Contracts Explained in One Example
Consider this hypothetical contract:
Will Nigeria’s annual inflation rate be below 15% in December?
The market offers two possible positions:
YES
and:
NO
Suppose the YES contract is trading at:
₦0.64 equivalent per ₦1 of settlement value
For simplicity, imagine each correct contract ultimately settles at:
₦1
and an incorrect contract settles at:
₦0.
A trader paying the equivalent of:
0.64
for YES is effectively paying 64% of the maximum settlement value.
That price can be interpreted roughly as:
64% market-implied probability
provided we understand that market prices are signals rather than perfect scientific probability estimates.
If the event happens:
YES settles at 1
If the event does not happen:
YES settles at 0
The corresponding NO position represents the opposite outcome.
This simple structure is the foundation of many binary event contracts.
How Does an Event Contract Work?
A typical event contract has five important components.
| Component | What It Means |
| Event question | Exactly what must happen |
| Contract sides | Usually Yes and No |
| Trading price | What participants currently pay |
| Resolution source | The authority/data used to determine the result |
| Settlement value | What a correct or incorrect contract becomes worth |
If any one of these is unclear, the contract is difficult to evaluate properly.
1. The Event Must Be Clearly Defined
A weak question would be:
“Will the economy perform well this year?”
What counts as “well”?
A stronger event contract might ask:
“Will officially reported real GDP growth for 2026 exceed 3.0%?”
Now there is:
- a measurable value;
- a defined period;
- a specific outcome threshold.
Event contracts work best when the result can be determined objectively.
2. You Choose a Position
For a binary contract:
Buy YES if you believe the event is more likely to happen than the current market price suggests.
Buy NO if you believe it is less likely.
This is fundamentally a probability decision.
You are not merely asking:
“Will it happen?”
The more useful question is:
“How likely is it to happen compared with the price currently available?”
3. Other Participants Influence the Price
Prices move as market participants buy and sell.
Suppose YES initially trades at:
42¢
New information is released.
Participants become considerably more confident that the event will happen.
YES might move:
42¢ → 55¢ → 67¢
The event itself has not yet occurred.
What changed is the market’s collective assessment of its likelihood.
Kalshi’s current educational material describes this price-discovery process as buyers and sellers taking opposing positions, with contract prices moving according to what participants are willing to pay.
4. The Contract Eventually Resolves
Once the relevant deadline or event arrives, the platform checks the contract’s published resolution rules.
If the specified event happened:
YES wins
If it did not:
NO wins
A binary contract structured to settle at $1 for the correct side and $0 for the incorrect side then receives its final settlement value.
Kalshi, for example, currently describes its contracts as worth $1 if the chosen outcome is correct.
Why Are Event Contracts Often Priced Between 0 and 1?
The pricing structure makes probability intuitive.
Suppose a correct contract settles at:
$1
A YES price of:
$0.25
can be read roughly as:
25% market-implied probability
A price of:
$0.50
≈ 50%
A price of:
$0.80
≈ 80%
Kalshi’s educational material similarly explains that a YES price of p cents can be interpreted approximately as a p% market-implied probability for a binary event.
Important Qualification
Market-implied probability is not guaranteed true probability.
Prices can be influenced by:
- imperfect information;
- limited liquidity;
- bid-ask spreads;
- participant behaviour;
- trading costs;
- temporary order imbalance.
A contract trading at 70¢ does not prove the event has exactly a 70.000% chance of occurring.
It means the market is currently pricing the contract around that level.
Event Contract Price Example
Consider:
Will Event A occur?
YES price:
62¢
Suppose you buy:
40 YES contracts
Cost before fees:
40 × $0.62 = $24.80
If YES resolves correctly:
Settlement:
40 × $1 = $40
Gross gain before applicable fees:
$40 − $24.80 = $15.20
If the event resolves NO:
The YES contracts settle at:
$0
The amount paid for the contracts is lost.
This example demonstrates an important characteristic of a fully funded binary contract:
Maximum Upside
Difference between:
settlement value
and:
purchase price
Maximum Downside
Typically the amount paid for the position, assuming the contract is structured and fully collateralised in this manner.
Always check the actual platform’s contract specifications and fees rather than applying this example universally.
What Does a 70-Cent Event Contract Mean?
If a YES contract settles at $1 when correct and currently trades at:
70¢
the intuitive interpretation is:
the market is pricing the event around a 70% chance.
But this does not mean:
70% of traders voted YES.
Market prices are not opinion polls.
A small number of traders can place large orders.
Others can hold opposite positions.
The price emerges from the interaction of orders and available liquidity.
This distinction matters particularly when event markets cover elections or other topics where polling data also exists.
NaijaScore9’s guide to prediction markets vs polls explains why a polling percentage and a market-implied probability answer fundamentally different questions.
Event Contracts vs Prediction Markets: What Is the Difference?
These terms are closely related but not identical.
Event Contract
The actual contract.
Example:
“Will inflation exceed 5% in Q4?”
Prediction Market
The marketplace where contracts concerning future outcomes are bought and sold.
The CFTC says the products traded on prediction markets are frequently referred to as event contracts and notes that such products have existed in U.S.-regulated markets for more than two decades.
A simple analogy is:
Stock = product
Stock exchange = marketplace
Similarly:
Event contract = product
Prediction market = marketplace
For a broader look at how these markets function and the different categories of events they can cover, see NaijaScore9’s predicton markets guide.
Are All Event Contracts Binary?
No.
The familiar YES/NO structure is common because it is easy to understand, but event contracts can also be structured around ranges or multiple possible outcomes.
A market could ask:
Where will inflation finish?
Possible contracts might represent:
Below 2%
2%–3%
3%–4%
Above 4%
Another structure might ask:
How much rainfall will a location receive?
with several outcome ranges.
However, binary contracts are particularly useful for explaining event markets because the settlement condition is simple:
event occurs
or:
event does not occur.
CFTC materials describe event contracts as typically having binary payoff structures, while recognising that the broader category can include other forms.
What Types of Events Can Event Contracts Cover?
The concept can be applied to many measurable outcomes.
Economic Event Contracts
Possible questions include:
- Will inflation exceed a specified rate?
- Will GDP growth reach a defined level?
- Will unemployment fall below a threshold?
- Will a central bank change interest rates?
These markets can provide an easily readable view of how participants currently price an economic outcome.
Weather Event Contracts
Examples can involve:
- snowfall;
- rainfall;
- temperature;
- hurricanes.
The CFTC specifically identifies snowfall and hurricane damage among examples of variables that can underlie event contracts.
Corporate and Financial Events
Contracts can reference defined outcomes such as:
- reported corporate earnings;
- economic releases;
- commodity-related measurements;
- specified financial thresholds.
Political or Election Events
Some prediction markets have offered contracts tied to:
- election winners;
- party outcomes;
- political events.
However, political event-contract regulation has been particularly contested and jurisdiction-specific.
Sports Event Contracts
Some current prediction markets also offer contracts related to sporting outcomes.
This is one area where terminology can become confusing because the user experience may resemble sports betting while the legal and market structure can be different.
Do not assume that a sports event contract and a conventional sportsbook wager are legally or operationally identical.
Event Contracts vs Sports Betting
They can look similar.
Consider:
Event contract: Will Team A win?
and:
Sportsbook market: Team A to win.
Both concern the same real-world result.
But their structure can differ materially.
| Feature | Event Contract Exchange | Traditional Sportsbook |
| Main instrument | Contract | Wager |
| Typical display | Price/probability | Decimal/fractional/American odds |
| Counterparty | Often another market participant | Usually bookmaker |
| Price formation | Orders and trading | Sportsbook pricing + market inputs |
| Exit before result | May be possible by selling | Cash Out may be offered |
| Settlement | Contract rules | Sportsbook betting rules |
| Regulatory treatment | Depends on jurisdiction and product | Gambling/betting framework typically applies |
On exchange-style event markets, participants can be trading against other users rather than the platform taking the opposite side.
Kalshi currently describes its model as matching market participants with opposing positions rather than acting as the participant on the other side of the trade.
That distinction can affect:
- pricing;
- liquidity;
- spreads;
- fees;
- ability to exit.
Event Contract Price vs Betting Odds
Both can communicate probability.
Suppose a sportsbook offers decimal odds of:
2.00
Raw implied probability:
1 ÷ 2.00 = 50%
An event contract trading at:
50¢
can also be interpreted roughly as:
50% market-implied probability
But these are not automatically equivalent prices.
Sportsbook odds can contain bookmaker margin.
Event-contract trading can involve:
- transaction fees;
- bid-ask spreads;
- liquidity differences.
Therefore, comparing:
50¢ event contract
with:
2.00 sportsbook odds
requires understanding how each market is priced.
NaijaScore9’s guide to what betting odds mean explains the sportsbook side of probability and payout.
Why Do Event Contract Prices Change?
Prices change when participants change what they are willing to pay.
That can happen because of new information.
Suppose a contract asks:
“Will inflation exceed 4%?”
YES trades at:
38¢
A higher-than-expected inflation report appears.
Participants may revise their forecasts upward.
YES moves:
38¢ → 51¢
Later, another economic release suggests prices are cooling.
YES drops:
51¢ → 44¢
Nothing unusual happened to the contract.
The market is continually replicating the probability of the future event.
Can You Sell an Event Contract Before It Settles?
On many exchange-based event markets, yes—provided there is a market and sufficient liquidity.
You do not necessarily need to hold every position until resolution.
Imagine you buy YES at:
40¢
New information pushes the market to:
65¢
You may be able to sell before the event occurs and realise the difference, subject to:
- available buyers;
- market spread;
- platform rules;
- fees.
This is an important difference between:
predicting the final event correctly
and:
trading changes in probability before resolution.
A trader can potentially profit from a price movement without holding the contract to final settlement.
But a favourable screen price does not guarantee you can exit a large position at exactly that price.
Liquidity matters.
What Is Liquidity in an Event Contract Market?
Liquidity describes how easily contracts can be bought or sold without substantially moving the price.
Consider two markets.
Market A
Many active buyers and sellers.
YES prices:
59¢ bid / 60¢ ask
The spread is narrow.
Market B
Few participants.
YES prices:
48¢ bid / 65¢ ask
The spread is much wider.
Even though both markets display a price, Market A generally provides cleaner price discovery and easier entry or exit.
Thin markets require greater caution when interpreting the headline probability.
A price produced by heavy two-way trading can contain more information than a stale price supported by very little activity.
What Is a Bid-Ask Spread?
The bid is what buyers are currently willing to pay.
The ask is what sellers currently require.
Example:
Best bid: 57¢
Best ask: 60¢
Spread:
3¢
You cannot simply assume the true executable price is:
58.5¢
If you want immediate execution, you may need to trade at the available side of the market.
Spreads are therefore one reason a displayed event-contract probability should be interpreted carefully.
How Are Event Contracts Settled?
Settlement should be determined by the contract’s published resolution conditions.
A well-designed contract specifies:
- the exact event;
- the deadline;
- the official source;
- what counts as YES;
- what counts as NO;
- how corrections or unusual cases are handled.
Consider:
“Will official annual inflation exceed 4.0% in December?”
The contract should identify:
which inflation measure?
which government release?
first release or revised figure?
what happens if publication is delayed?
Without clear resolution criteria, two traders could correctly understand the same sentence differently.
That makes settlement rules one of the most important parts of any event contract.
Why the Resolution Source Matters
Suppose an election contract asks:
Will Candidate A win Region X?
News organisations may project a winner before the official authority certifies the result.
Which one settles the market?
That depends entirely on the contract.
It might specify:
- official election authority;
- designated news organisation;
- court-certified result;
- another named source.
Likewise, economic contracts can specify a particular statistical agency and publication.
You should know the resolution source before taking the position, not after the outcome becomes controversial.
What Happens If an Event Is Delayed?
Again, the contract rules decide.
Suppose the question is:
“Will Event A occur by September 30?”
If the underlying event is postponed until October:
the answer could simply resolve:
NO
because it did not happen by the stated deadline.
But another contract may include a specific postponement provision.
This is why event-contract settlement cannot be interpreted from the headline alone.
The exact wording is the contract.
What Happens if the Result Is Ambiguous?
Good contract design tries to prevent ambiguity.
Nevertheless, real-world events can produce:
- data revisions;
- legal challenges;
- postponed announcements;
- disputed classifications;
- reporting errors.
Platforms therefore need explicit resolution procedures.
This is particularly important because once a binary contract settles:
one side can receive the full settlement value while the other receives zero.
A vague resolution condition can therefore produce a material financial dispute.
Are Event Contracts the Same as Binary Options?
They can share a binary payoff structure but should not automatically be treated as the same product.
A simple event contract might settle:
$1 if YES
$0 if NO
A binary option can also have an all-or-nothing payout.
But legal classification, underlying reference, trading venue and product structure can differ.
Use the specific product’s legal and contractual definition rather than assuming every instrument with two possible settlement values is identical.
Event Contracts as a Forecasting Tool
One major reason event markets attract attention is information aggregation.
Different participants may possess different information:
- data;
- forecasts;
- research;
- domain expertise;
- private probability estimates.
When those participants trade, their willingness to buy and sell can become compressed into one market price.
The CFTC describes prediction markets and event contracts as products that can help the public forecast, plan for and hedge future events.
A market price can therefore act as a continuously updating forecast.
But it should still be treated as:
market information
rather than:
certain knowledge of the future.
Event Contracts Can Also Be Used for Hedging
Not every participant needs to be making a pure prediction.
Suppose a business would be financially harmed if:
rainfall exceeds a certain amount
during a specific period.
A suitable event contract might potentially offset part of that external risk.
If the harmful event occurs:
the business suffers operationally but the contract pays.
If the event does not occur:
the business avoids the external loss but may lose the contract cost.
That is the basic economic idea behind hedging.
CFTC materials explicitly identify hedging and risk management among possible uses of prediction markets and event contracts.
Event Contracts Are Not Guaranteed Forecasts
Suppose YES trades at:
90¢
and NO ultimately wins.
Was the market automatically wrong?
Not necessarily in the way people often mean.
A 90% probability still implies roughly:
10 chances in 100
for the opposite result.
Low-probability events happen.
Probability does not mean certainty.
The correct way to evaluate market forecasts is across many comparable predictions.
If events priced near 70% occur roughly seven times out of ten over a meaningful sample, the market may be reasonably calibrated even though some individual 70% contracts lose.
Market Price Is Not the Same as Truth
This distinction is important for AI summaries, search snippets and reader understanding:
Event contract price = what the market currently implies
not:
event contract price = objective guaranteed probability
Prices can be wrong because participants can be wrong.
Markets can also react excessively to:
- breaking news;
- rumours;
- limited liquidity;
- emotional trading.
A useful analyst therefore asks:
What information produced this price?
rather than merely repeating:
“The market says 74%, so it must be 74%.”
Example: Using an Event Contract Properly
Consider:
Question: Will Indicator X exceed 5.0?
Current YES:
45¢
Your analysis estimates:
60% probability
If your estimate is well-founded, you might believe YES is underpriced.
Your reasoning is:
Market-implied probability ≈ 45%
versus:
Your probability estimate = 60%
The potential opportunity comes from the difference between your probability estimate and the price.
Now suppose YES rises to:
68¢
but your estimate remains:
60%
The event can still be more likely than not.
Yet the contract may no longer appear attractive under your own estimate.
That distinction between:
likely outcome
and:
good price
is fundamental.
Event Contracts vs Polls
Polls and event contracts can both produce percentages, but they measure different things.
Suppose:
Poll: Candidate A has 48% support
Prediction market:
Candidate A YES = 65¢
These numbers do not contradict each other.
The poll asks something such as:
“Who do respondents currently support?”
The event contract asks:
“What is the market-implied probability that Candidate A eventually wins?”
A person can therefore have 48% current support and a 65% probability of victory depending on:
- electoral structure;
- turnout;
- remaining undecided voters;
- expected future changes.
This is why percentages should always be interpreted according to what produced them.
Event Contracts vs Traditional Forecast Models
A statistical model might estimate:
Event probability = 63%
The market trades YES at:
58¢
Neither number should automatically replace the other.
A model follows predefined assumptions and inputs.
The market aggregates the decisions of many participants.
They can disagree.
That disagreement is potentially useful.
It tells you that:
the model and the market are valuing the available information differently.
Instead of automatically choosing one, investigate the reason.
Are Event Contracts Regulated?
This depends heavily on jurisdiction.
In the United States, the CFTC currently treats event-contract markets commonly referred to as prediction markets as part of the commodity-derivatives regulatory framework. In February 2026, the Commission publicly reaffirmed what it describes as its exclusive jurisdiction over U.S. commodity derivatives markets, including relevant event-contract markets.
The regulatory framework is still actively developing. The CFTC withdrew its 2024 event-contract rule proposal in February 2026 and began a new prediction-market rulemaking process, including a March 2026 request for public input on how existing statutory principles and regulations should apply.
That U.S. framework should not be assumed to determine the legal status of event-contract trading in Nigeria or any other jurisdiction.
Users should verify:
- whether a platform serves their jurisdiction;
- which regulator oversees it;
- whether the specific contract is permitted;
- what customer protections apply.
What Should You Check Before Trading an Event Contract?
Understand the Question
Can you explain precisely what must happen for YES to settle?
Read the Resolution Rules
Identify:
- source;
- deadline;
- measurement;
- exceptional circumstances.
Convert Price Into Probability
If a binary contract settling at $1 trades at:
37¢
understand that the market is roughly implying:
37%
before considering trading frictions.
Form Your Own Probability View
Do not buy simply because:
“37¢ looks cheap.”
Cheap relative to what?
If you believe the event has only a:
15% chance
then 37¢ could be expensive.
Check Liquidity
Look at:
- bid;
- ask;
- spread;
- volume.
Understand Maximum Loss
Know exactly how much you can lose if your position settles incorrectly.
Include Fees
Gross theoretical profit and net realised profit can differ.
Know Whether You Can Exit Early
Do not assume an active secondary market will always be available at your desired price.
Check Regulatory Eligibility
Use platforms and products legally available in your jurisdiction.
Conclusion
The easiest way to understand event contracts is to begin with one question:
What exactly must happen for this contract to settle successfully?
Everything else follows from that.
A typical binary event contract converts a future event into two possible positions:
YES — it happens
NO — it does not.
Those positions can trade before the final outcome is known.
If a YES contract with a $1 settlement value trades around:
65¢
the market is effectively communicating:
approximately 65% market-implied probability
at that point in time.
If new information makes the event look more likely, participants may bid the YES price higher.
If the outlook weakens, it can fall.
Eventually, speculation ends and the resolution rules take over.
The designated source determines whether the event satisfied the contract’s conditions, and the position settles accordingly.
That creates three separate concepts readers should not confuse:
Prediction = what you think will happen.
Price = what the market currently charges for that outcome.
Settlement = whether the defined event actually occurred under the contract rules.
A strong event-contract decision therefore requires more than predicting the winner.
You need to understand:
- the exact contract wording;
- market-implied probability;
- your own probability estimate;
- bid-ask spread;
- liquidity;
- transaction costs;
- settlement source;
- maximum potential loss.
And remember the distinction between event contracts and the broader market around them.
An event contract is the instrument.
A prediction market is where such instruments can be traded.
That is why NaijaScore9 treats this article as an explanation of the contract itself while its broader prediction markets section covers the wider market structure and categories.
Event contracts can make uncertainty easier to quantify, but they do not remove uncertainty.
A 75% contract can lose.
A 20% contract can win.
The number is a price-informed probability estimate—not a promise about what will happen.
The most useful way to read an event contract is therefore:
Understand the event → read the resolution criteria → interpret the price → form an independent probability estimate → compare probability with price → understand the risk before trading.