What Is an Event Contract?

If you have spent any time on Kalshi or Polymarket, you have already traded event contracts. But the term gets used loosely. This post gives you a precise definition, explains where these instruments sit in the regulatory stack, and shows how they compare to options and futures.

The One-Sentence Definition

An event contract is a binary derivative listed on a CFTC-regulated exchange that pays $1 if a specified real-world outcome occurs and $0 if it does not. Everything else follows from that.

The Mechanics: $0 to $1, Nothing Else

Contracts trade between $0.01 and $0.99. That price is the market's implied probability of the outcome. A contract priced at $0.40 says the market thinks there is roughly a 40% chance the event happens.

Settlement is binary. If the outcome is confirmed, every Yes contract pays $1. If not, every No contract pays $1. There are no partial payouts, no delta to manage after expiry, and no delivery of an underlying asset.

The two sides of every trade sum to $1. When you buy Yes at $0.30, the other side buys No at $0.70 (implicitly). The exchange holds that $1.00 in aggregate until settlement. You cannot lose more than your purchase price per contract.

How Event Contracts Differ from Options and Futures

The comparison comes up constantly, and it matters for anyone used to trading equity derivatives or commodity futures.

• Payoff shape. A vanilla option has a continuous, nonlinear payoff that depends on how far the underlying moves. An event contract pays exactly $0 or $1. There is no intrinsic value gradient, no gamma to hedge, and no vega exposure to implied volatility in the traditional sense.
• Underlying. Futures and most options reference a price (equity index, commodity, rate). Event contracts reference an outcome: Will the Fed cut rates in June? Will the Eagles win Sunday? The "underlying" is a binary fact, not a continuous price.
• Margining. Standard futures require margin because losses can exceed the initial post. Event contracts are fully paid upfront. Your maximum loss is what you paid. No margin calls.
• Expiry behavior. An option can expire worthless but may have had value along the way because of time value. An event contract is worth $0 until the event resolves, at which point it jumps to $1 or stays at $0. The price before resolution is purely a probability estimate.
• Position delta. Futures have a 1:1 delta to the underlying by definition. Options have a variable delta. Event contracts have no equivalent concept. They do have an implicit probability sensitivity, but there is no continuous underlying to hedge against.

The Regulatory Structure

Event contracts fall under the Commodity Exchange Act (CEA). Exchanges that list them must be registered as Designated Contract Markets (DCMs) with the CFTC. That registration requires maintaining surveillance systems, enforcing trading rules, and providing auditable settlement sources.

Kalshi received DCM status in November 2020 and launched its first contracts in 2021. Polymarket took a different path: it was fined $1.4 million by the CFTC in January 2022 for operating an unregistered facility for event-based binary options, and was required to block US users as part of that settlement. In July 2025, after the DOJ and CFTC formally ended their investigations, Polymarket announced the acquisition of QCEX, a CFTC-licensed derivatives exchange, for $112 million. The CFTC issued an Amended Order of Designation in November 2025, and Polymarket US began onboarding US traders in December 2025. Today, both platforms operate as CFTC-regulated DCMs for US persons.

The international polymarket.com site remains offshore and is required to block US persons. US traders who want to use Polymarket legally do so through Polymarket US, the regulated subsidiary.

The most active legal question right now is whether the CEA preempts state gaming laws for sports contracts. Federal district courts in Nevada and New Jersey sided with Kalshi, holding that the CEA preempts state-level gaming regulation. A Massachusetts court reached the opposite conclusion. That circuit split is unresolved and is shaping which contracts each platform can offer in which states. Separately, the CFTC's own position on whether event contracts constitute swaps, as the agency concluded in Polymarket's 2022 enforcement action, continues to create regulatory uncertainty for the industry.

What Can You Trade?

DCMs are permitted to list contracts on a wide range of outcomes, subject to CFTC review. The current category mix reflects where trader interest has concentrated:

• Sports: roughly 80% of Kalshi's volume and 39% of Polymarket's, since sports markets opened in January 2025.
• Politics and elections: dominated before sports launched. Still the largest single non-sports category on Polymarket, at roughly 32% of its volume.
• Cryptocurrency prices: a meaningful share on both platforms.
• Economics: Fed decisions, CPI prints, unemployment levels.
• Culture and entertainment: Oscar winners, video game release dates, album drops.

Combined, Kalshi and Polymarket logged close to $40 billion in reported trading volume in 2025. Note that the two platforms measure volume differently: Kalshi uses face value per contract, while Polymarket uses taker notional, so the aggregate figure requires some caution in interpretation. Monthly combined volume hit nearly $24 billion in April 2026, according to Pew Research Center analysis of data from The Block.

Why Binary Settlement Matters for Strategy

The $0/$1 settlement structure creates trading properties that differ from anything in traditional derivatives:

• Edge is purely probabilistic. You win when your probability estimate is better than the market's implied price. There is no path dependency to exploit and no way to stay in a losing position hoping for a partial recovery.
• Position sizing is straightforward. Buying 100 contracts at $0.30 costs $30 and returns $100 if correct. Kelly-criterion sizing applies cleanly because outcomes are binary.
• Market microstructure favors limit orders. Most event contract markets use a central limit order book. Prices jump discretely near resolution, so placing limit orders near fair value is often more efficient than hitting the spread.
• Correlation is low to traditional assets. A contract on whether a sports team wins has near-zero correlation to equity markets, making it a structurally uncorrelated return stream.

A Note on Price Accuracy

Event contract prices are often treated as calibrated probabilities, but research suggests they are not perfectly calibrated. A 2025 study analyzing over 300,000 Kalshi contracts found a clear favourite-longshot bias: contracts priced below 10 cents win less often than their implied probability suggests, while high-priced contracts win more often than implied. This is the same bias documented in sports betting markets. In practice, it means mid-probability markets tend to be better calibrated than the tails.

Event Contracts and Automated Strategy

Because event contracts trade on a central limit order book with a public API, they are well-suited to systematic strategy. You can express a probability edge directly: if you think a contract is worth $0.45 and it is priced at $0.38, you buy. If the market agrees over time, you profit. There is no continuous hedging required.

That is exactly what Banger is built around. You write a Python strategy using banger.Strategy, back it against the live order book in paper mode, then run it live on Kalshi or Polymarket US with a declarative risk envelope: per-trade position cap, daily loss stop, max open positions, and a kill switch. Banger never custodies your funds. You bring your own venue API keys. Start with:

pip install bangertrades
banger run strategy.py --paper

The paper mode runs your logic against the live order book without committing real money, so you can validate your probability edge before going live.

The Bottom Line

An event contract is the simplest derivative structure that exists: a binary bet on a fact, regulated like a futures contract, settled at $0 or $1. It does not require you to forecast how much something moves, only whether something happens. That simplicity is both the appeal and the challenge. Your edge lives entirely in probability estimation, and the market is increasingly competitive. Understanding the instrument precisely, not just the platform, is where durable edge starts.