Explainers

Definitions and primers

Plain-English answers to the questions readers (and search engines) ask first. Dense, sourced, dated. Updated as the regulation moves.

Prediction markets

How are prediction-market winnings taxed?
Prediction-market taxation covers how profits from event contracts are taxed. Treatment varies by platform type and country — records are essential.
What is the Kelly criterion?
The Kelly criterion calculates the optimal bet size as a fraction of your bankroll using your edge and the odds on offer. Learn the formula, a worked example, and why most bettors use half-Kelly.
What is a parlay bet?
A parlay chains multiple selections into one bet with multiplied odds. All legs must win to pay out, and the compounding bookmaker margin makes parlays lower expected value than straight bets.
What is arbitrage betting (arbing)?
Arbitrage betting exploits pricing gaps between bookmakers so that backing every outcome guarantees a profit. The key condition: combined implied probabilities must sum below 100%.
What is closing line value (CLV)?
CLV measures whether your bet price beats the sharpest, most efficient odds available — the closing line. It's the best pre-results proxy for a +EV betting process.
What is expected value (EV) in betting?
Expected value (EV) measures the average profit or loss of a bet repeated many times. Learn the EV formula, see a numeric example, and find your edge.
What is implied probability in betting?
Implied probability turns betting odds into a percentage likelihood, letting you compare a sportsbook's view against your own estimate. Master the formulas and understand the vig to spot genuine value.
What are no-vig (fair) odds?
No-vig odds strip the sportsbook's margin from a line, revealing the fair implied probability. Use them to benchmark value and spot +EV opportunities across books.
What is the vig (vigorish) in betting?
The vig is the bookmaker's margin baked into every price, causing implied probabilities to exceed 100%. Knowing how to calculate and minimize it is key to smarter betting.
What is Manifold Markets?
Manifold is a prediction-market platform where users create markets and trade with play-money "mana", making it a low-stakes way to forecast almost anything.
What is Limitless?
Limitless is an on-chain prediction-market platform built for fast, short-duration markets, settling trades transparently on-chain like Polymarket.
Is Polymarket legal in the United States?
Polymarket has been legally inaccessible to U.S. residents since a January 2022 CFTC settlement. Here's what that means for U.S. users and what legal alternatives exist.
How do event contracts work?
Event contracts are binary derivatives priced as implied probabilities, settling at $1 or $0 based on real-world outcomes. They're traded on CFTC-regulated exchanges like Kalshi and CME.
What are prediction markets?
Prediction markets let traders buy and sell binary event contracts priced by live auctions — not fixed odds. They're federally regulated by the CFTC, legal in all 50 US states, and distinct from traditional sportsbooks.
What is Kalshi?
Kalshi is the first federally regulated prediction market in the U.S., operating under CFTC oversight since 2020. Trade real-money event contracts legally in all 50 states via ACH.
What is Polymarket?
Polymarket is a decentralized prediction market on Polygon, settling trades in USDC. Blocked for US users since a 2022 CFTC settlement, it processed $3.5B+ in volume during the 2024 US election.

Definitions and primers

Prediction markets

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