Market Explainer

Prediction Market Contracts: Political Contract Types

A practical guide to the common contract formats used to express political questions in prediction markets.

By Top Prediction Markets EditorialReviewed September 7, 20265 min read

Answer first

Political prediction markets use several contract types to express different questions: binary (Yes/No), categorical (multiple exclusive outcomes), scalar (numeric ranges like vote share), and conditional/combinatoric (events dependent on others or combined). Each type has a different resolution rule and payoff structure, so prices map to probabilities or expected values in distinct ways.

If you buy one “Green wins” Yes contract at $0.62, what happens when the market resolves?

Imagine a national election with three notable candidates: Green, Blue, and Orange. Market contracts exist for different ways to ask who wins.

One simple Yes contract for "Green wins the election" currently trades at $0.62 (62¢). That price is the market's implied probability that Green wins, for a standard binary contract.

If you buy one Yes contract at $0.62 and hold to resolution:

If Green wins, the contract pays $1, so your gain before fees is $0.38 ($1.00 − $0.62).
If Green loses, the contract expires at $0, so your loss is $0.62.

This is the baseline situation we use to compare other contract types against — same election, same numeric price for the Green outcome, different contract questions and payout mechanics.

How the market asks the same question differently: categorical, scalar, conditional and combinatoric contracts

Markets can offer several contract formats that all relate to who wins, but they answer different questions.

Categorical (multiple exclusive outcomes)

Definition: contracts for each possible winner; exactly one pays $1 and the others pay $0.
Price example: Green $0.62; Blue $0.28; Orange $0.10. These sum to $1.00, reflecting a full probability distribution across exclusive outcomes.
Practical note: buying the Green categorical contract at $0.62 is financially identical at resolution to buying the Green Yes contract at $0.62, because only the winning category pays $1.

Scalar (numeric outcomes like vote share)

Definition: a contract that resolves to a number inside a defined range and pays that number normalized to $1. For vote share the range is often 0–100.
Price example: "Green's final vote share (two-party)" trading at $0.485 (48.5%).
Payout example: Buy one contract at $0.485 and hold to resolution:
- If Green's final two-party share is 52.0, the contract pays $0.520, so your gain before fees is $0.035 ($0.520 − $0.485).
- If Green's final share is 44.0, the contract pays $0.440, so your loss before fees is $0.045.
Practical note: the scalar price is an expected value of a continuous outcome, not a probability that one event occurs.

Conditional and combinatoric contracts

Definition: conditional contracts resolve only if a stated condition is true; combinatoric contracts pay only when a specific combination of events occurs.
Conditional example: "Green wins the general election, given there is no contested recount" — the quoted price functions like a conditional probability and the contract may only pay if the upstream condition occurs.
Combinatoric example: "Green wins AND Party X controls the Senate" is a single contract that pays $1 only if both outcomes happen.
Price example: a combinatoric contract might trade at $0.20. That price equals the market's joint probability for both events under the contract's resolution terms.

How those contracts actually pay out when ballots and rules determine winners

Below is a compact view of how the same election question would pay under each contract type given the example prices.

Contract type	Example price	What it pays if Green wins	What it pays if Green loses
Binary Yes	$0.62	$1.00 (gain $0.38)	$0.00 (loss $0.62)
Categorical (Green)	$0.62	$1.00 (gain $0.38)	$0.00 (loss $0.62)
Scalar (Green %; 0–100)	$0.485	$[Green% as $1 scale] (e.g., 52% → $0.52)	$[Green% as $1 scale] (e.g., 44% → $0.44)
Combinatoric (Green & Senate)	$0.20	$1.00 if both occur; otherwise $0.00	$0.00

Resolution rules on platforms normally specify the official data source that decides the winner, the exact time or cutoff for determining the outcome, and how ties or ambiguous cases are handled. The contract price is a market estimate; the resolution text determines what actual outcome triggers the $1 payoff.

What moving prices before resolution tells you

The underlying math is straightforward across contract types:

For binary/categorical contracts, price = market-implied probability.
For scalar contracts, price = expected value of the numerical outcome on the contract's scale.
For combinatoric/conditional contracts, price = joint or conditional probability as defined by the contract.

Worked example that focuses on a single Yes contract:

You buy one "Green wins" Yes contract at $0.62.
Later the market moves to $0.75; that new price implies the market now assigns a 75% chance to Green.
If you still hold to resolution and Green wins, your contract pays $1, so your realized gain remains $0.38. If Green loses, your realized loss remains $0.62.

Price movements change the mark-to-market value of your position and signal revised market probabilities, but they do not change the contract's resolution rule or the $1/$0 payoff structure at expiry for binary and categorical contracts.

A common practical mistake: treating categorical prices that do not sum to 1 as impossible. Some platforms show totals different from 1.00 because of fees, unfilled markets, or contracts that are not strictly exhaustive. Always check the contract rules and any fee mechanics before inferring impossibility from sums that deviate from 1.00.

How to read and report these prices correctly in context

A Yes contract trading at $0.62 should be read as a 62% implied chance for the event as defined by that contract's text. Quote the contract definition when reporting that number.
Comparing a binary price to a scalar price requires care: the binary answers "does Green win?" while the scalar answers "what percent of the vote does Green get?" They are different variables and can both be true simultaneously.
Conditional and combinatoric prices represent conditional or joint probabilities as written in the contract. To convert a conditional price into an unconditional probability you must multiply by the probability of the condition, using the market price (or other estimate) for that upstream event.
Always read resolution conditions: the market price reflects beliefs, but the contract's documentation determines what outcome pays and what edge cases exist (ties, recounts, certified sources, cutoffs).

Frequently asked questions

What exactly does a binary contract price mean?

A binary contract price equals the market's implied probability that the contract's event will occur; a $0.62 price implies a 62% chance that the event happens, as defined by the contract's resolution rules.

How is a scalar contract payout calculated?

A scalar contract pays the realized numeric outcome scaled to $1 across its defined range. For a 0–100 vote-share scalar, a 52% result pays $0.52.

How do conditional contracts differ from regular ones?

Conditional contracts only resolve if their stated condition is met; they represent a conditional probability or payout that depends on another event occurring.

Can categorical contract prices sum to more or less than $1?

They should approximate a sum of $1 if the categories are exhaustive and mutually exclusive, but platform mechanics, fees, or non-exhaustive framing can make the sum differ from exactly $1.

Are prediction market contracts legal everywhere?

Rules vary by location and platform. See our dedicated guide on whether prediction markets are legal in the US.