What are event contracts?

Event contracts are the foundation of prediction markets. Each contract is based on a clearly defined question about a future event, such as whether a team will win a game, whether a data point will exceed a certain level, or whether a specific outcome will occur by a set date.

For every event, contracts are structured around two complementary outcomes:

• Yes — the event occurs exactly as defined
• No — the event does not occur as defined

While event contracts may appear to be binary trades, participants can choose to hold a contract until settlement or trade contracts as prices fluctuate. Those prices reflect the market’s collective assessment of the likelihood that the event will occur at any given moment. Importantly, the Yes and No contracts are two sides of the same question, not two different questions.

Every event contract is built around a clearly defined question with two complementary outcomes: Yes or No. Understanding what those labels actually mean is essential, because they’re more literal than they first appear.

A Yes contract pays out if the event happens exactly as described in the contract’s question—nothing more, nothing less. For example, if the question is “Will Candidate A win the election?”, a Yes contract pays out only if Candidate A is officially declared the winner according to the contract’s resolution rules.

A No contract pays out if that same defined outcome does not occur. This is where many people get tripped up. Buying No doesn’t mean you’re predicting another candidate will win. It means you’re expressing the view that the precise condition in the contract will fail to be met. In this case, you’re predicting candidate A will not win.

That might include scenarios where another candidate wins, Candidate A withdraws, or the outcome is otherwise resolved against the Yes condition. This distinction matters because Yes contracts usually rely on a single, specific path to success, while No contracts often represent many possible paths. That’s why No contracts can sometimes trade at higher prices than people expect: there are simply more ways for a defined outcome to fail than to occur.

It’s also important to note that this is a generic example. Different categories of event contracts may handle edge cases or non-standard outcomes differently. The exchange that lists the contract defines those rules in advance, and they’re outlined in the contract’s terms. Reviewing how a contract defines resolution—especially for No positions—is an important part of understanding how it may pay out, or not.

Once this literal framing is clear, the behavior of Yes and No contracts—and their pricing—tends to make much more sense.

Every event contract has a defined resolution point. This is when the event is officially determined and the contract settles.

At settlement:

• Contracts tied to the correct outcome settle at $1
• Contracts tied to the incorrect outcome settle at $0

If you hold a contract through final settlement, its value depends entirely on whether the outcome matches the event question. There’s no partial credit and no gray area once the event is resolved.

It’s also important to understand that event timing and payout timing aren’t always the same. For example, while a US presidential election is held on the first Tuesday in November, the outcome isn’t typically certified until January of the following year. If you plan to hold a contract like this until final settlement, that means holding the position for months after Election Day. The availability of proceeds can also depend on processing timelines once the result is officially certified.

If you plan to trade prediction markets, it’s critical to understand how event contracts are priced. Specifically, the Yes and No contracts each trade at their own prices, generally between $0.01 and $0.99.

The price of a Yes contract reflects how likely the market believes the event is to occur. For example, if a Yes contract is trading around $0.70, the market is broadly signaling that the outcome is considered more likely than not—roughly a 70% chance. Conversely, if it’s trading closer to $0.20, the market is expressing much lower confidence that the event will happen, roughly 20%.

The No contract represents the opposite condition: that the event does not occur as defined. A No contract trading at $0.30 implies the market assigns about a 30% chance that the event fails to happen. Importantly, the prices of the Yes and No contracts don’t always add up to exactly $1.00. Differences can reflect liquidity, supply and demand, or transaction costs rather than a perfect probability split.

As with any market, prices move as participants update their views and trade. New information such as data releases, announcements, results, or changing conditions, can cause prices to adjust even though the final outcome remains unknown. That’s because prediction markets respond to expectations, not certainties. Trading activity reflects how beliefs evolve over time, often well before an event ultimately resolves.

Because Yes and No are complements, their prices are closely related, but not always symmetrical, and do not always add up to $1.00. If a Yes contract is trading at $0.30, the No contract might trade near $0.70 (accounting for fees and spreads). That doesn’t mean No is “safer” or that Yes is “unlikely” in a casual sense. It means the market believes the event is less likely to occur than not occur. Buying No can feel strange because people naturally think in stories (“Who will win?”), while No contracts ask you to think in terms of failure conditions (“Will this exact thing not happen?”).

Not all events resolve cleanly. Some events can result in outcomes that fall outside a simple win-or-lose scenario. Examples include, but are not limited to:

• A tie or draw
• A cancellation or postponement
• A change in how data is reported
• A participant withdrawing from an event

When this happens, the exchange that lists the contract determines how settlement is handled, based on predefined rules. In some cases, contracts may settle at a partial value (such as $0.50). In others, they may resolve using the last available data or be settled in a way that reflects the most reasonable interpretation of the outcome.

The key takeaway is this: edge cases are real, and they matter. Not every event fits neatly into a Yes-or-No outcome, and how those situations are handled depends on the contract’s specific terms. Before entering a position, it’s worth taking a moment to review how the contract defines resolution, edge cases, and non-standard outcomes, so you understand exactly what conditions determine whether a position pays out or not.

Event contracts don’t have to be held until settlement—you can trade them. Participants can choose to close a position before the event resolves by trading the opposite side of the same contract, essentially closing or reducing your position. The profit or loss is determined by the difference between your entry price and exit price.

That said, the ability to exit isn’t guaranteed. Event contracts trade on open markets, which means liquidity matters. In fast-moving or thinly traded markets—or during trading halts—it may not be possible to close a position at the time or price you expect.

This is why many experienced participants approach event contracts assuming they may need to hold until settlement, even if they plan to exit earlier. Since this is a market, the ability to enter and exit at fair prices should always be considered before engaging in trading a specific event.

One reason event contracts can appear simple is that the maximum payout and maximum loss are clearly defined. When you enter a position, you know the most you can lose on that contract. However, defined risk does not mean low risk.

Because event contracts can settle worthless, it’s possible to lose the full amount allocated to a position. Liquidity constraints, timing, and unexpected outcomes can all contribute to losses. This is why position sizing, trade selectivity, risk management, and discipline matter.

Event contracts are simple in structure but nuanced in practice. Each contract is tied to a clearly defined Yes or No outcome, priced to reflect the market’s current expectations.

Understanding what a contract represents, how it settles, and how edge cases are handled is essential before participating. Many early losses stem not from being wrong about an event, but from misunderstanding how the contract works.

Continue learning about event contract pricing in the next article.

If you have account-specific questions or need help related to prediction markets, event contracts, or Robinhood policies, please visit the Robinhood Help Center or reach out to our support teams from within the app.