Binary Contract

A binary contract is a financial instrument that pays out a fixed amount (typically $1) if a specified condition is met, and nothing otherwise. Prediction markets are built on binary contracts.

CLI:sf market KXRECSSNBER-26

Binary Contracts in Prediction Markets

A binary contract has exactly two outcomes: Yes or No. There is no in-between. The contract either settles at $1.00 (Yes wins) or $0.00 (No wins). This simplicity is what makes prediction markets powerful — every contract maps directly to a probability.

Structure

On Kalshi, binary contracts trade in cents from $0.01 to $0.99. When you buy a "Yes" contract at 65 cents, you're simultaneously selling the "No" side at 35 cents (since Yes + No always equals $1.00).

Types of Binary Contracts

Event contracts: Will X happen? (e.g., "Will there be a government shutdown?")
Range contracts: Will X be above/below Y? (e.g., "Will WTI crude oil exceed $100/barrel?")
Date-bound contracts: Will X happen before date Y?

Multi-Outcome Events

Some events have more than two outcomes (e.g., "Who will win the presidential nomination?"). These are structured as multiple binary contracts — one per candidate — where the set of Yes prices should sum to approximately $1.00. On Kalshi, these appear as event groups with tickers like KXDEM-26.

Key Properties

Binary contracts have bounded risk. You can never lose more than you paid for the contract, and your maximum profit is $1 minus your entry price. This makes position sizing straightforward.

Example

Kalshi contract: KXRECSSNBER-26 "Will NBER declare a recession by Dec 31, 2026?"

Buy 50 Yes contracts at $0.28
  Max loss:   50 x $0.28 = $14.00
  Max profit: 50 x $0.72 = $36.00

The risk/reward ratio is 36:14, or about 2.6:1.
This is attractive IF you believe the true probability exceeds 28%.

Related Terms

Prediction Market

A prediction market is an exchange where participants trade contracts whose payoff depends on the outcome of future events. The price of a contract reflects the crowd's aggregate estimate of the event's probability.

Outcome Probability

In a prediction market, the price of a contract directly represents the market's consensus estimate of the probability of that outcome occurring. A contract at $0.72 implies a 72% probability.

Settlement

Settlement is the process by which a prediction market contract is resolved to its final value — either $1.00 (Yes) or $0.00 (No) — once the outcome of the underlying event is determined.

Event Contract

An event contract is a type of binary contract tied to a specific real-world event with a defined resolution date. Unlike perpetual financial instruments, event contracts have a built-in expiration.

← All glossary terms Read the docs →