Event Contract

Every event contract defines four elements: the question (what outcome is being predicted), the Resolution Criteria (exact conditions that make it resolve YES), the Resolution Source (authoritative data provider that determines the outcome), and the Market Expiry date after which no new trades are accepted. Upon resolution, the Settlement process pays $1.00 per share to holders of the correct outcome and $0.00 to holders of the incorrect outcome. The Contract Price before resolution fluctuates between $0.00 and $1.00 based on Order Book activity. Platforms like Kalshi publish resolution criteria in advance, reducing ambiguity. In rare edge cases, markets can resolve as Invalid Market if the event fails to produce a clear result.

Unlike futures or options on stocks or commodities, event contracts settle on the occurrence of a discrete event rather than a continuous price. This binary Payout structure makes them simpler to understand: there is no delta, no theta, and no complex pricing formula. The Price as Probability principle means the market price directly communicates the crowd's probability estimate, which is not the case for most derivatives. Under U.S. law, event contracts are classified as commodity derivatives and must be traded on a CFTC-Regulated Exchange or, in decentralized form, through on-chain protocols like those used by Polymarket. Traders use them for both hedging real-world exposures and for outright speculation based on Edge in forecasting.