Under the hood: order books, AMMs & market makers
Two ways a market sets its price — matching buyers and sellers, or a formula that always quotes.
Order books
Like a stock exchange, an order book matches buyers and sellers at agreed prices; the last trade and the best available bid and ask set the current price. Kalshi and Polymarket use order-book matching (Polymarket matches orders off-chain for speed, then settles them on-chain).
Automated market makers
Instead of waiting for a counterparty, an automated market maker (AMM) uses a formula to always quote a price out of a pool of shares — so you can trade instantly even when a market is quiet. The price moves as the pool's balance of Yes and No shares changes.
The original recipe — LMSR
Many early prediction markets used economist Robin Hanson's Logarithmic Market Scoring Rule (LMSR): a “cost-function” maker that always offers a price, updates smoothly from the very first trade, and caps the operator's worst-case loss — guaranteeing there's always someone to trade with.
Why it matters to you
You don't trade here, but the plumbing affects how much to trust a number. Thin, low-volume markets have wide spreads and noisier prices; deep, high-volume markets settle closer to a true consensus. PredictionHub shows each market's volume and liquidity so you can weigh it.
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