Event Contract
An event contract is a financial contract whose payout depends on whether a specified event or outcome occurs. Event contracts are commonly associated with prediction markets. The CFTC specifically discusses prediction markets and event contracts within US derivatives regulation.
✦ Key Insight
Event contracts allow traders to take positions on measurable outcomes rather than simply whether the price of Bitcoin, gold, or another asset rises or falls. Markets may relate to economic indicators, financial events, weather, politics, sports, or other objectively resolvable questions. The exact regulatory treatment depends on the market, contract, jurisdiction, and operator.
✕ Common Misconceptions
Ignoring the exact wording
Assuming real-world truth automatically determines settlement
Failing to check the resolution source
Confusing an event contract with a futures contract
Trading before understanding cancellation rules
Assuming all event contracts are legally available everywhere
Detailed Explanation
How It Works
A contract specifies:
The event
Possible outcomes
Trading period
Resolution criteria
Data source
Settlement method
Participants then buy or sell exposure.
Once the event occurs, an approved resolution source determines the outcome and eligible contracts settle according to their terms.
FAQs
What decides the result?
The contract's published resolution rules.
Can an event contract be disputed?
Platforms may have dispute or review mechanisms depending on their rules.
Are event contracts new?
No. The CFTC notes that event contracts have existed in US regulated markets for more than two decades.
In Practice
Dig Deeper
Binary Option
A binary option is a contract with two primary possible settlement outcomes based on whether a defined condition is met. Unlike owning an asset, the trader is taking a position on a specific yes-or-no condition.
CFTC
The CFTC, or Commodity Futures Trading Commission, is the US federal agency responsible for overseeing US derivatives markets under the Commodity Exchange Act and related laws. Its remit includes markets involving futures, options, swaps, and certain event contracts.
Settlement
Settlement is the process of finalising a trade or contract and transferring the resulting value to the appropriate participants. In prediction markets, settlement generally occurs after the market's outcome has been resolved.