What Are Yes/No Contracts?

What it means

In simple terms, a Yes contract — an event contract that pays $1 if the event happens — is a binary contract used in prediction markets. If the event occurs, a Yes contract pays $1; if it does not occur, the contract pays $0.

Here's the basic idea: the market price of a Yes contract is quoted in dollars (or cents) and functions like an implied probability. A price of $0.62 typically means the market assigns a 62% chance to the event.

Why it matters

The key thing to know is that Yes/No contracts make uncertainty easy to read and trade. They turn questions with two possible outcomes into a single number you can buy or sell.

• They give a simple, shared measure of collective belief about an event’s chance.
• They let people express views or hedge exposures in a compact, standardized form.

How it works

1. A question is posted to the market with a clear binary resolution condition (e.g., "Will candidate X win the election on date Y?"). The market operator sets rules for how the outcome will be judged and when.

2. Traders buy and sell Yes contracts (and often complementary No contracts). The trading price moves as participants respond to news and opinion. The price of a Yes contract is typically shown in dollars or cents and equals the market’s implied probability.

3. At resolution, each Yes contract either pays $1 if the event happened or $0 if it did not. Traders’ gains and losses are simply the difference between what they paid and the settlement amount.

The mechanics are intentionally simple so that the outcome and payoff are unambiguous. The main sources of variation are trading fees, the timing of resolution, and the exact wording of the question.

A simple example

If a Yes contract costs 62¢ and pays $1 if the event happens, buying one contract costs $0.62. If the event happens, the contract pays $1, so the gain before fees is $0.38. If the event does not happen, the contract expires at $0, so the loss is $0.62.

A few short notes about that example:

• The price 62¢ implies a 62% probability in the market.
• The buyer’s return is (settlement − price paid). If the contract settles at $1, the return is $0.38 on a $0.62 stake.
• If the market charges a fee when you buy or when you win, subtract that fee from the gain shown above.

Common mistakes

Reading price as certainty

Common mistake: treating a contract price as a guarantee. A price of 62¢ reflects collective belief at that time, not a certain outcome. Prices change with new information.

Confusing Yes with No

Common mistake: misreading whether a contract is a Yes or No contract. A Yes contract pays if the event occurs. If you mean to bet it won’t occur, you must take the No side or sell the Yes contract.

Ignoring fees and resolution details

Common mistake: forgetting that platform fees, payout schedules, and the precise resolution rules affect net returns. Always check how disputes, ambiguous outcomes, and fees are handled.

Related concepts

• What Are Prediction Markets?
• How Do Prediction Markets Work?
• How to Read Prediction Market Prices
• How Prediction Market Payouts Work