Beginner Guide

What Are Yes/No Contracts?

A plain explanation of the simple event contracts used in prediction markets.

By Top Prediction Markets EditorialReviewed September 7, 20263 min read

Answer first

A Yes contract — an event contract that pays $1 if the event happens — represents market belief about a binary outcome. Its price (in dollars) is the market’s implied probability that the event will occur. Buying a Yes contract is a straightforward way to take a position that an event will happen: you pay the price now and either receive $1 at resolution or lose what you paid if it does not happen.

What exactly is a Yes contract and how does it pay out?

A Yes contract is a type of event contract used in prediction markets that has only two possible payoffs: $1 if the specified event occurs and $0 if it does not. That binary payoff is the defining feature — the contract resolves to one of those two amounts once the event’s resolution criteria are met.

Because the payoff is fixed and simple, traders can treat the contract as a unit of outcome exposure. Owning one Yes contract gives you a clear claim: you receive $1 if the resolution condition is satisfied, otherwise you receive nothing.

Does the price of a Yes contract equal the market’s probability for the event?

Yes — the market price of a Yes contract is quoted in dollars (or cents) and functions like an implied probability. For example, a price of $0.62 typically means the market assigns a 62% chance to the event occurring.

That price is not a guarantee; it’s a snapshot of collective belief and demand at the moment you see it. Prices change as new information arrives, so the implied probability moves with the market rather than being a fixed truth about the future.

How are Yes contracts created, traded, and resolved?

First, someone posts a clear binary question to a market — for example, "Will candidate X win the election on date Y?" — and the market operator sets the resolution rules and timeline. The clarity of the resolution condition matters because it determines how the contract will be judged when the event ends.

Traders then buy and sell Yes contracts and often complementary [No contracts](/glossary/no-contract "glossary:no-contract "glossary:no-contract"). The trading price moves as participants respond to news and information; platforms typically display the price in dollars or cents, which equals the market’s implied probability. At resolution each Yes contract either pays $1 if the event happened or $0 if it did not, and traders’ gains and losses are the difference between what they paid and the settlement amount.

The mechanics are intentionally simple so that outcome and payoff are unambiguous. The main sources of variation in what you actually receive are trading fees, the timing of resolution, and the exact wording of the question, which is why platform rules and deadlines matter.

Can you show a concrete example of profit and loss with these numbers?

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.

What common mistakes do people make with Yes/No contracts?

One frequent mistake is treating a contract price as certainty. A price of 62¢ reflects collective belief at that time, not a guaranteed outcome. Prices respond to new information and can move substantially between the time you act and the event’s resolution.

Another mistake is confusing which side you hold. A Yes contract pays if the event occurs; if you intend to profit from the event not occurring you must take the [No contract](/glossary/no-contract "glossary:no-contract "glossary:no-contract") side or sell the Yes contract. People also sometimes ignore platform fees, payout schedules, and the precise resolution rules — disputes, ambiguous outcomes, and fee timing all affect net returns, so check the platform’s terms before trading.

Frequently asked questions

What does the price of a Yes contract represent?

The price (in dollars) represents the market’s implied probability that the event will happen. For example, $0.62 implies about a 62% chance.

If I buy a Yes contract, how much can I lose?

Your maximum loss is the amount you paid for the contract. If you buy one Yes contract at $0.62, the most you can lose is $0.62 if it settles at $0.

What happens if a question is ambiguous at resolution?

Resolution depends on the market’s stated rules. Many platforms have dispute processes or specific arbiter rules. Check the question’s resolution language before trading.

Can I sell a Yes contract before it resolves?

Most markets allow selling a Yes contract to another trader before resolution, but rules and liquidity vary by platform. Selling can lock in gains or limit losses, but it is a different action than buying and holding to resolution.

Are Yes/No contracts the only type of contract in prediction markets?

No. Markets also use scalar contracts, range contracts, and multi-outcome contracts, but Yes/No contracts are the simplest and most common for binary questions.