How Polymarket Works: Markets, Prices, Shares

What are events and markets?

Everything you can trade is grouped into events and markets. An event is the topic people see, such as a central bank meeting, a vote or the price of bitcoin on a given day. A market is one tradable yes-or-no question inside that topic, with a Yes outcome and a No outcome (up/down markets call their two outcomes Up and Down).

An event with a single market is, in practice, the same thing as that market. Other events hold several, for example one market per candidate in a question about who will win.

What does a Yes or No share pay?

Every market has two kinds of share. A Yes share pays out if the condition happens, and a No share pays out if it does not. When the market settles, a winning share is redeemable for $1.00 and a losing share is worth $0.00.

Until then each share trades at a price between $0.00 and $1.00. Because the end value is all or nothing, the price can be read as a probability, and that is how Polymarket's documentation reads it. Treat it as the current view of the traders, not as a measurement or a promise.

Why do a Yes share and a No share add up to a dollar?

A pair of shares is made from collateral, and the rule is short: 1 pUSD creates one Yes share and one No share. The documentation adds that a full Yes and No set is backed by 1 pUSD of value, which implies that the two payouts at settlement add up to one dollar. The process also runs backwards: a Yes and a No share can be merged into collateral, and the exchange can create or merge pairs while it settles a trade.

As general reasoning, not a documented rule, the two prices of one market should therefore stay near one dollar in total: buying both costs slightly more and selling both returns slightly less, because a buyer pays the ask and a seller receives the bid (the order book guide explains the gap).

What is pUSD?

pUSD, short for Polymarket USD, is the collateral used for every trade on Polymarket. Technically it is an ERC-20 token on Polygon that is backed by USDC (ERC-20 is a standard token format, Polygon a blockchain network and USDC a US-dollar stablecoin), and a smart contract enforces the backing, with no algorithmic peg and no fractional reserve. How pUSD is created and what it replaced as collateral is covered in the pUSD and Protocol V2 guide.

What are outcome tokens and positions?

Polymarket records Yes and No shares as ERC-1155 tokens on Polygon (another standard token format), and your position in an outcome is the balance you hold. Depending on the market, the balances sit in the older Conditional Tokens contracts or in the newer Protocol V2 position manager, which mean the same thing to a trader.

The value of a position is Position balance × Current price. Four operations change a position: splitting collateral into a pair, trading on the order book (how most users get their positions), merging a pair back into collateral, and redeeming winners after resolution.

Who is on the other side of your trade?

There is no house to bet against. Polymarket's documentation puts the model in one line: you trade with other users, not against a house. Orders go to a central limit order book, a list of offers to buy and sell at stated prices, and a trade happens when a buyer and a seller agree. The price comes out of the offers, not from Polymarket.

A Polymarket operator does the matching off the chain, which keeps it quick, and the resulting trade settles on the chain through smart contracts. According to Polymarket's trading overview, the operator can match orders but cannot set prices or trade without a user's authorization. The order book guide shows how to read a book, and the order types guide covers the orders you can send.

Can you sell before the market resolves?

Yes. A position can be sold at any time before resolution, so holding to the end is optional. Selling means another trader takes your shares at a price the book offers at that moment.

What happens when a market resolves?

Once the real-world result is known, the market resolves and trading in it stops. Each winning share can then be redeemed for $1.00, and each losing share is worth $0.00. Redeeming turns winning shares into pUSD, and there is no redemption deadline. There is one exception to know about: a binary market can resolve to a split payout, and each side then redeems for its share.

Who decides the outcome depends on the market: UMA for prediction markets and Chainlink TWAP for up-down markets, and Polymarket's 101 page adds that Protocol V2 markets can also use other resolution mechanisms. In a market resolved through UMA's Optimistic Oracle, someone proposes an outcome and posts a bond, a challenge period follows, and a dispute can end in a vote of UMA token holders. In an up/down market, a time-weighted average price (TWAP) computed by Chainlink, a price-data network, sets the starting price and the final price. The UMA resolution guide and the crypto Up/Down guide take each case in turn. Whichever route applies, the rules of the single market are what count, and Polymarket's own warning is that the title only states the question, while the resolution rules decide the outcome.

What are negative-risk events?

Some events contain several markets of which only one can win. These markets are tied together as a negative-risk group, in which exactly one market resolves Yes and all the others resolve No. The link makes one extra operation possible: a No share in one market can be converted into a Yes share in every other market. Betting against one outcome becomes the same thing as betting on all the others. The glossary entry on negative risk walks through the conversion.

What does Polymarket's documentation say about custody and wallets?

Polymarket's documentation describes the platform as non-custodial, meaning that you stay in control of your funds. In that description your wallet holds the assets, your private key guards them, and trades settle through smart contracts. The same page states the other side: losing your private key means losing access to your funds, though recovery may be possible for some account types.

Polymarket also uses smart wallets, which are wallets run by a contract. They let you trade without submitting every onchain transaction by hand, and Polymarket's relayer, a service that submits transactions on your behalf, can carry out many wallet actions without paying gas (gas is the network fee for a blockchain transaction). The table shows the three kinds of smart wallet and which accounts use each:

Wallet types on Polymarket. Source: docs.polymarket.com/trading/wallets-auth, checked Oct 19, 2026.

Every order is a signed message, and the signature is what authorizes the settlement contract to carry out that one trade.

What does it cost to trade?

On prediction markets that charge fees, Polymarket's fee falls on the trader who takes liquidity from the book, at a rate set by the market category. Makers, whose resting orders get filled, pay none. Geopolitical and world events markets are fee-free. Polymarket charges no fee to deposit or withdraw, although the fees page notes that an intermediary you use to move money may charge its own. An interface that routes your order can add a builder fee on top, and Perps fees differ: the tier follows trailing 30-day trading volume. The fees guide has the formula and the rates, and the fee calculator works out a trade.

How are Perps different?

Polymarket Perps are a separate product. A prediction market share ends at 1 or 0 once an event is decided, apart from a split payout, while a perpetual future follows the price of an asset and a Perps position has no expiry date. Perps accounts also use pUSD as collateral, but they add leverage, margin, funding payments and liquidation. The Perps guide covers them.

PolyTerminal is an independent interface for Polymarket and is not operated or endorsed by Polymarket. Orders placed through PolyTerminal carry PolyTerminal’s Polymarket builder code, and PolyTerminal may charge a builder fee on top of Polymarket’s own fees. This page is educational and is not investment advice. Rules were compared with the official documentation on Oct 19, 2026; check the source before you act on a number.