Definition
A binary event market is a prediction market structured around a yes/no question about a real-world event. The contract resolves to exactly $1.00 if the event occurs (YES wins) or exactly $0.00 if it doesn't (NO wins). There are no intermediate values — only two outcomes, each with a definitive settlement.
Examples
- "Will the Fed cut rates at the June FOMC meeting?" — YES or NO
- "Will Bitcoin exceed $100,000 before July 2026?" — YES or NO
- "Will the Democratic candidate win the 2026 Senate race in Arizona?" — YES or NO
The complement property
The defining mathematical feature of binary markets: YES and NO are perfect complements. If you hold one YES contract and one NO contract for the same event, you are guaranteed to receive exactly $1.00 at settlement — regardless of which outcome occurs. One contract pays $1.00, the other pays $0.00. Combined payout: always $1.00.
Why this enables arbitrage
The complement property only applies when both contracts refer to the same event with the same resolution criteria. When the same binary event is listed on two platforms (Polymarket and Kalshi) at different prices, and their combined cost is below $1.00, buying YES on one and NO on the other guarantees a profit at settlement. This is complement arbitrage.
Market price interpretation
The market price of a YES contract represents the crowd's implied probability of the event occurring. A YES contract priced at $0.65 implies a 65% market probability. Prices fluctuate as news breaks, and the two platforms often update at different speeds — creating temporary divergences that arbitrageurs can exploit.