> For the complete documentation index, see [llms.txt](https://docs.prophetmarket.ai/llms.txt). Markdown versions of documentation pages are available by appending `.md` to page URLs; this page is available as [Markdown](https://docs.prophetmarket.ai/get-started/prophet-101.md). # Prophet 101 *Prediction markets explained.* A prediction market turns a question about the future into something you can buy and sell. Instead of stating an opinion, you take a position at a price, and that price tells you what the market currently believes. ## Shares of an outcome Every Prophet market has two sides. A YES share pays one dollar if the event happens and nothing if it does not. A NO share is the exact mirror: it pays one dollar if the event does not happen and nothing if it does. Only one side can win. Shares trade between zero and one hundred cents. Because a winning share is worth exactly one dollar, the price you pay is a direct statement of probability. A YES share at sixty seven cents means the market puts the chance of the event at roughly sixty seven percent. | YES price | Implied probability | Payout if YES wins | Profit per share | | --------- | ------------------- | ------------------ | ---------------- | | 25¢ | 25% | $1.00 | +75¢ | | 50¢ | 50% | $1.00 | +50¢ | | 67¢ | 67% | $1.00 | +33¢ | | 94¢ | 94% | $1.00 | +6¢ | *Cheap shares pay more when they win because the market thinks they are unlikely to.* ## The invariant The entire system rests on one equation. One dollar of collateral creates exactly one YES share and one NO share. Because precisely one of those two shares will end up worth a dollar and the other will end up worth nothing, the pair always sums to one dollar in expected value. **The invariant** ``` $1.00 = 1 YES + 1 NO ``` One outcome wins. The winning share pays $1.00, the losing share pays $0.00. This is why prices are probabilities, why YES and NO prices are related, and why a voided market returns fifty cents to each side. Every rule further down in this documentation is a consequence of that equation. ## Making money You profit by buying a side you think is underpriced. Suppose a market asks whether Brent crude closes above a given level this week, and YES is trading at thirty cents. If your own read of the situation says the real chance is closer to fifty percent, then thirty cents is cheap and you buy YES. **Worked example** ``` Buy 100 YES shares at 30¢ cost = $30.00 Event occurs, YES pays $1.00 return = $100.00 ``` Profit = $70.00 You are not locked in until resolution. If the price rises to sixty cents because the market comes around to your view, you can sell and take the gain immediately rather than waiting for the event. Equally, if news moves against you, you can sell to limit the loss instead of holding a position to zero. {% hint style="warning" %} **The spread is a real cost** The price to buy and the price to sell are not the same number. The gap between them is how Prophet earns, and it is already built into the quoted prices. On a short round trip that gap matters more than the direction of your view. See [Fees, Spread & Gas](file:///8729275/reference/fees-spread-and-gas.md). {% endhint %} ## Why an AI prices the market A market needs a price before anyone can trade it. On most platforms that price only appears once enough traders show up to build a book, which means a newly created question can sit unpriced and untradeable for a long time. Prophet solves that by having a consensus of AI models read real time information and generate calibrated odds for any question within seconds of it being written. The practical effect is that you can write an unusual question at two in the morning and have a tradeable market almost immediately. The models are the starting point for price discovery rather than the final word on it, and prices continue to move as information arrives. ## Why a blockchain Prophet settles on Polygon, and every position, trade and payout is recorded on chain. That is not decoration. It means your balance is verifiable by you rather than asserted by Prophet, your funds sit in a wallet you control, and the review window between a proposed outcome and a claimable payout is enforced by a smart contract that Prophet itself cannot override. {% hint style="success" %} **You do not need to understand any of that to trade** If you sign in with email or Google, a wallet is created for you, there is no seed phrase to write down, and Prophet pays the network fees. The blockchain is there for verifiability, not as homework. {% endhint %} --- # Agent Instructions This documentation is published with GitBook. GitBook is the documentation platform designed so that both humans and AI agents can read, navigate, and reason over technical content effectively. Learn more at gitbook.com. ## Querying This Documentation If you need additional information that is not directly available in this page, you can query the documentation dynamically by asking a question. Perform an HTTP GET request on the current page URL with the `ask` query parameter, and the optional `goal` query parameter: ``` GET https://docs.prophetmarket.ai/get-started/prophet-101.md?ask=&goal= ``` `ask` is the immediate question: it should be specific, self-contained, and written in natural language. `goal` is optional and describes the broader end goal you are ultimately trying to accomplish on behalf of the user. GitBook uses it to tailor the answer towards what is most useful for that goal. The response will contain a direct answer to the question and relevant excerpts and sources from the documentation. Use this mechanism when the answer is not explicitly present in the current page, you need clarification or additional context, or you want to retrieve related documentation sections.