Prediction market pricing depends on how buyers and sellers find each other, and comparing the best prediction market sites at https://predictionmarketscomparer.com/ helps traders understand these differences. Traditional exchanges use Order Books (CLOBs). Market Makers, called AMMs, use a different approach. An AMM is a formula set on a contract, not a engine. Traders don’t trade with another person. They trade directly with the pool. The method below changes execution quality.
What Are AMMs in Prediction Markets
An AMM is an algorithm. It sets prices without needing a counterparty. The system uses a formula to check the pool’s assets and decide the price. Each trade changes the ratio of assets in the pool. After every trade, the pool updates to show the balance. An AMM needs an deposit of capital. This can come from the market creator or providers. The formula determines how much the price changes for each dollar traded. AMMs use a contract, not an engine. The contract holds all collateral and runs trades according to the formula.
Which AMM Models Run Today’s Markets
Three formulas shape trade-offs in prediction markets for 2026. LMSR with a subsidy uses an function. The subsidy comes from the market creator. CPMM uses the product formula from exchanges, so the mechanics follow x\*y=k. This setup lets the pool keep going, since providers earn fees. LS-LMSR tracks trading volume. AMM and CLOB designs mix market-making with limit orders. Polymarket uses this model now.
How Do Liquidity Pools Function
Liquidity providers add collateral to a contract. When a trader buys a YES share, the AMM creates that share and collects the cash. After every trade, the AMM formula updates the price. The price comes from the ratio of YES to NO shares in the pool. Pool depth is the total capital available at that price range. Each trade reduces this depth. More capital in the pool means less slippage for everyone. Lower deposits make trades more expensive. For example, if someone tries to buy $10,000 in YES shares, the price might move by 5 to 10. In a market, the same trade only shifts the price by 0.5 to 1.
Risk and Return for Liquidity Providers
LPs get fees and take a share of each trade. An LP needs to deposit both sides. If prices move in one direction, the other side loses value. Impermanent loss is the value lost when the market finishes far from the deposit price. If the market finishes with YES at 100 percent, NO shares lose all value. The LP loses the value of those NO shares. In some markets, this loss can end up greater than the fees earned. Fee rates must stay high enough to cover this loss if the market finishes in one direction. LMSR puts all risk on the market creator. CPMM spreads risk across all LPs. LPs should check whether fees will cover any losses by the time the market resolves.
LMSR vs CPMM vs LS-LMSR
LMSR gives a quote for every price. It keeps the subsidy the same at all times. The creator takes on all the financial risk in the pool. This model works best in research markets, where price discovery matters more than making a profit. CPMM uses the x*y=k formula, as in Uniswap. Here, liquidity comes from LPs, so the model doesn’t need a creator subsidy. CPMM markets run without anyone putting up their own capital. They keep going on their own. LS-LMSR links market depth to trading volume. More volume means markets. This setup lowers the subsidy needed, compared to LMSR. The choice of model decides who holds the risk. By 2026, most venues use CPMM. LMSR is still used for academic or markets. LS-LMSR sits between the two, with depth that adjusts over time as trades happen.
When Does an Order Book Beat an AMM
A Central Limit Order Book lets market makers post limit orders at prices. Traders connect through an API and fill orders at those prices, which cuts slippage costs. When institutional traders need to place orders and avoid price slippage, they often use order books. Polymarket started with only an AMM. Later, it shifted its volume and liquidity rewards to a CLOB.
AMMs give quotes in markets where makers do not want to risk capital. Some platforms use both systems at once. Retail users see an aggregated price, which combines quotes from the CLOB and the AMM backup pool. Kalshi uses only a CLOB and does not use an AMM.
What Do You Pay Per Trade
Fee structures are different on each prediction market site. The return depends on how the platform sets up its fees. For example, a trader might buy a position at 50 cents and sell at 60 cents. That looks like a 10-cent profit, but the real profit changes when you factor in the site’s fees. Polymarket has a 2 percent fee on profits only. For every $1.00 earned, a trader pays $0.02. Kalshi takes about 7 percent from profits, so after fees, a $1.00 gain comes out to $0.93. Robinhood charges $0.01 to $0.02 per contract for event contracts routed through Kalshi. DraftKings charges $0.02 for each contract, each way. ForecastEx costs $0.01 per side. PredictIt has a 10 percent fee on profit, and then adds another 5 percent when withdrawing funds, so the total cost reaches 15 percent. The total cost also includes the bid-ask spread at the start. When the trade closes, that entry cost doubles, because fees are paid on both sides of the trade.
Where Does Liquidity Concentrate
Polymarket processed more than $3.5 billion during the 2024 US presidential election. By 2025, total volume reached $21.5 billion. In early 2026, more than 688,000 traders use the platform each month. Over 500 markets run at once. Political and macro markets show six-figure depth within two cents of the midpoint. Kalshi has the liquidity to support data contracts. These contracts include topics like the Consumer Price Index, numbers, and decisions from the Federal Reserve. After a court decision in 2024, Kalshi increased the number of markets to over 85,000.
Volume Trends Across Market Categories
The prediction market sector reached $44 billion in volume during 2025. US markets got more regulatory clarity, so institutions started to get in through 2025 and into early 2026. Estimates for 2026 put volume at $240 billion. That’s a projected year-over-year growth of 445% from 2025 to 2026. In November 2025, Kalshi raised $1 billion in funding. At that point, the company had an $11 billion valuation. Some individual contracts go over $100,000 in these periods. Economic data contracts stay steady. They get daily volume, but their spreads are narrower, and the order books are smaller compared to other categories. Sports markets use event schedules, which brings in retail traders.
How to Check a Market Before You Trade
Three traits make a market worth using. First, see if it has enough liquidity. Then look at the costs. Last, check the resolution criteria. Order book depth matters. Check how much volume sits at different price levels—not just the best prices, but also further out in the book. Find out the cost to trade. Double the bid-ask spread to get the round-trip cost. For example, if the spread is 5%, the total cost is 10%. Compare how different prediction market sites set their fees. Check what kind of venue you’re using. Some use AMM systems. Others use CLOBs. A few combine the two. Record slippage and see how it matches up with the quoted spread. Always read the resolution rules before you trade. Make sure they refer to data sources.
Conclusion
AMM mechanics set price, slippage, and total cost for each prediction market trade. LMSR, CPMM, and LS-LMSR each make different trade-offs. LMSR has liquidity. Still, it needs an upfront subsidy. CPMM puts risk on liquidity providers. LS-LMSR scales depth with more volume. Order books are better when trades are large. Some traders pay 2% on Polymarket. On PredictIt, effective costs can reach 15%. The gap is big. By 2026, volume could hit $240 billion.
