The book is the product
A bookmaker's product is a price. A prediction market's product is a place where prices happen. That inversion changes what the business has to be good at. A sportsbook employs traders to be right about probabilities; an exchange employs nobody to have a view and instead has to attract enough people with views, and enough capital willing to quote, that the book is deep at the moments customers want to trade.
The metric that captures this is not margin but liquidity: how much can be traded at or near the current price without moving it. A market with a hundred dollars on the bid and a hundred on the offer at a one-cent spread is a good market for a customer wanting to trade fifty dollars and a useless one for a customer wanting to trade five thousand. Every conversation about whether prediction markets can compete with sportsbooks is, underneath, a conversation about liquidity.
Makers, takers and the fee
Exchanges charge fees per trade, and the convention in this product, borrowed from equities and crypto, is to charge differently for the two roles.
A maker posts a limit order that rests in the book: buy yes at 62, say, when the best offer is 64. A taker hits an order already in the book, accepting the price on offer. Makers provide liquidity; takers consume it. Venues typically charge takers a fee and charge makers little or nothing, and some pay makers a rebate, because without resting orders there is nothing for anyone to take. Kalshi charged only takers until 2025 and now applies maker fees on some markets; Polymarket charges takers only and returns a share of those fees to makers as daily rebates.
The fee is usually expressed as a function of the contract price rather than a flat percentage, because a flat fee on a contract at 95 cents would be a huge fraction of the possible profit and a trivial fraction on one at 50 cents. A common formula charges a percentage of the product of the price and one minus the price, which is highest at 50 cents and falls to near zero at the extremes. From 2021 to April 2025 Kalshi's taker fee was 7 per cent of that product, with the total rounded up to the nearest cent, and Kalshi says some markets now carry different fees; Polymarket's rate on sports markets is 5 per cent. On a contract at 50 cents those formulas produce a fee of 1.75 cents and 1.25 cents per contract, which, once the spread is added, is comparable to or somewhat below the margin in a standard sportsbook line (the customer's arithmetic below works it through). That is the customer's advantage and the venue's problem: on the same wager it earns less than a bookmaker would.
Who quotes
Retail customers rarely post resting orders at both sides of a market. Liquidity comes from three sources.
Designated market makers. Professional trading firms contracted by the venue, typically under a programme that rebates fees or pays for meeting quoting obligations. Kalshi's programme, filed with the CFTC in 2024, requires participants to quote continuous two-sided markets with maximum spreads and minimum quote sizes in designated contracts during specified hours, and its rulebook allows market makers financial benefits, reduced fees and different position limits. In the regulated American venues these are the same kinds of firms that make markets in options and crypto: Kalshi's first institutional market maker, in April 2024, was Susquehanna International Group, which Kalshi described as one of the largest options and ETF market makers, and in February 2026 Bloomberg reported that Jump Trading would take small equity stakes in Kalshi and Polymarket in return for providing liquidity.
Informed participants. Traders with a model, an edge or information, who post orders at prices they believe are right and are happy to be filled. On sports contracts this population overlaps heavily with the sharp bettors a sportsbook would limit or ban. On an exchange they are welcome, because they are the ones keeping the price honest and the venue earns a fee whether they win or lose.
Hedgers. A bookmaker, a syndicate or a media company with exposure to an outcome can offset it on an exchange, and the deepest markets in any sport are the ones where that hedging flow exists. This is the reason exchanges want sportsbook partners: the partner's liability becomes the exchange's liquidity.
The consequence for market quality is a familiar one from betting exchanges. Mainstream events with public interest and professional flow are liquid, tight and well priced. Niche events are thin, and a customer who wants to trade them pays a wide spread or does not get filled. An exchange cannot offer three thousand markets a day at usable prices the way a bookmaker's pricing engine can, because it has to persuade someone to take the other side of each of them.
How the price moves
Prices move on an exchange for the same reasons odds move at a bookmaker: new information, flow and the correction of errors. The mechanics differ.
On an exchange, a large buy order walks up the book, filling the best offers first and moving the last-traded price. If the order was informed, the new price is more accurate; if it was a large retail order without information, the price has moved for no reason and market makers will sell into it until it comes back. The public can watch this happen in the order book, which is a level of transparency no bookmaker offers.
Two systematic patterns are worth knowing. The favourite-longshot bias, well documented in betting, appears in prediction markets too: a study of more than 300,000 Kalshi prices from 2021 to April 2025 found that low-price contracts win far less often than their price implies and high-price contracts slightly more often. Contracts at very low prices tend to be overpriced, because a few cents feels cheap for a chance at a dollar, and contracts at very high prices tend to be slightly underpriced, because the profit looks small. The same study found that makers earned better returns than takers, although both showed the pattern. And thin-book drift: in a market with little liquidity, the price is whatever the last small trade was, and it can sit far from the true probability for hours. Reading a two-dollar trade as "the market thinks" is a mistake the press makes constantly.
Resolution sets the price at the end
Every contract has a resolution rule: the source that will be consulted, the time at which it will be consulted and what counts as yes. The price converges toward one dollar or zero as the event approaches and the outcome becomes clear, and it settles at the rule's answer.
The quality of the rule matters more than it sounds. A contract on "will the Federal Reserve cut rates in March" is easy to write. A contract on "will a ceasefire be agreed by the end of the month" is not, because reasonable people can disagree about what happened, and a market that resolves on a contested reading of events destroys trust in every other market on the venue. Regulated exchanges resolve against the source named in the contract and decide doubtful cases internally: at Kalshi, an Outcome Review Committee of the board determines the outcome within 24 hours, and its determination is final. Crypto-native venues resolve through an oracle: on Polymarket's international exchange anyone can propose an outcome against a bond, and a proposal disputed twice goes to a vote of UMA token holders. That process was called into question in March 2025, when a $7 million market on a Ukraine minerals deal resolved yes although no agreement had been made, amid suspicion that a large UMA holder had swayed the vote. Lesson four returns to this.
What the venue earns
Put the pieces together and the exchange's economics are visible. Revenue is the fee on volume: a small number of cents per contract, weighted toward contracts near 50 cents and toward takers. Cost is technology, compliance, market-maker incentives, marketing and, for the regulated venues, the substantial cost of being a federally supervised exchange.
The number that matters is volume, and the venues report it because it is the number that grows. For illustration, a billion dollars of monthly notional at a blended fee of one per cent is ten million dollars of revenue, which is a small sportsbook. The largest venues are now far past that scale on the strength of sports contracts: Pew Research Center, using data from The Block, found that combined monthly volume on Kalshi and Polymarket rose from under $5 billion in September 2025 to about $24 billion in April 2026, with sports 80 per cent of Kalshi's volume since July 2024, against roughly $14 billion a month wagered with legal US sportsbooks in 2025. The reason sports matter to them is the same reason sports matter to bookmakers: it is the only category with daily, repeatable, mainstream demand.
The customer's arithmetic
A bettor comparing an exchange to a book should compare total cost, and the honest comparison is closer than the headline. A sportsbook's margin on a two-way market priced at 10 to 11 on both sides (American odds of -110) is about 4.5 per cent of stake: on an even contest the bettor stakes 110 to win 100 and on average loses 5 for every 110 staked. On player props and same-game parlays the margin is higher. An exchange's taker fee at a 50-cent price is 1.75 cents a contract at Kalshi's 7 per cent rate and 1.25 cents on Polymarket's sports markets, which is 3.5 and 2.5 per cent of a 50-cent stake, but the customer also crosses a spread, which on a liquid market is a cent or two and on an illiquid one can be ten. Paying half a cent over the midpoint adds roughly another percentage point. For a mainstream game, then, the exchange is broadly comparable to a standard line, cheaper for a customer who posts resting orders and pays little or no fee, and further ahead against props and parlays. For an obscure prop it may not be, and it may not be available at all.
The other difference is limits. A sportsbook restricts customers who win; an exchange does not care who wins because it is not the counterparty. For a sharp bettor that is decisive, and it is a large part of the case exchanges make to professional bettors. Whether that money's presence makes the exchange a better or worse place for a recreational customer is a question lesson five takes up.
What to take from this lesson
An exchange earns less per wager than a bookmaker and needs more of them. Its quality depends on liquidity, which depends on market makers and hedgers, which depends on partnerships. Its prices are transparent and, in liquid markets, more accurate than a bookmaker's, because the sharpest participants are welcome rather than limited. Its weaknesses are the mirror image: thin markets, wide spreads on anything niche and a resolution process that has to be trusted. Every strategic decision about this product is a decision about which of those facts dominates.