How prices are calculated and what they say about the future.
On Kalshi, the Yes and No sides of a contract are always distributed as a pair: when you invest in a market, Kalshi matches you with another user on the platform looking to purchase the opposite side. One of you will receive the Yes side of a contract, the other will receive the No side, and in return, the two of you will pay a total of $1. When the market resolves, exactly one of you will receive that dollar in return. Which of you gets the money depends on whether the market resolves to Yes or No.
But if you look across the exchange, you’ll notice that the prices quoted for Yes and No contracts vary a lot between markets. In some, the Yes and No sides are both priced near 50¢, and in others, one side might be significantly more expensive than the other. Where exactly do these splits come from?
Prices as predictions
Prices on Kalshi have a very natural interpretation as probabilities. Remember that every contract will pay out $1 if it answers the underlying question correctly. If some question has a 40% chance of being answered Yes, the expected value of the Yes side of an associated Kalshi contract is 40¢. If an event becomes more likely because of some recent news, then the expected value of its contracts will change, and people will be willing to pay a new amount for them. Thus, the prices on Kalshi should reflect the probabilities for different events, or at least the probabilities that traders believe. If you think the market is mispriced, then there’s an opportunity for a high value trade."Prices on Kalshi should reflect the probabilities for different events, or at least the probabilities that traders believe."
How are members matched in a trade?
You can think of every trade on the platform as a deal taking place between two participants: a “maker” and a “taker”. The maker is the first one to the table: They declare a side they’re willing to buy (Yes or No), and how much they’re willing to pay. Takers can see all available offers and match with the most generous one.
Example: A popular weather app predicts that it will rain tomorrow. Makers on the exchange offer to pay between 60¢ and 70¢ for the Yes side on “Will it rain tomorrow?”. After studying the underlying data, you think that the market could easily resolve in either direction, and you decide to buy No. You enter the market as a taker, and are automatically matched with a maker at the best price available: 30¢ for No. After you make this trade, everyone on the platform sees that the last traded price for Yes on the market is 70¢ for Yes and 30¢ for No.