Binary options and prediction markets

It’s a bet on whether the price will be higher in five minutes. Guess right, and you get 80% of your bet on top. Guess wrong, and you lose the whole bet. You bet $10 and guess right — you get $8 on top. Guess wrong — you lose the whole $10. To break even, you have to guess right more than 55 times out of 100. Over five minutes, the price behaves almost like a coin toss, so in the long run this game almost always ends in a loss.

Prediction markets look similar but work differently. There you buy a contract on an event: if it happens, the contract is worth $1; if not, $0. The price of the contract shows how the crowd rates the chances: $0.30 means about 30%. The price is set by the participants themselves, not by the platform betting against you. If the event doesn’t happen, the contract is worth 0, and everything you paid for it is lost.