What is an Event Contract on Robinhood? A Complete Guide on Event Contracts

Robinhood prediction markets have been drawing interest from many US traders. If you’re interested in them, know that you’ll be dealing with event contracts. In this comprehensive guide, we’ll explain everything about the Robinhood event contracts.

You can view an event contract as a financial instrument that lets you trade on the outcome of a real-world event. Therefore, you buy one based on whether you believe an outcome will be true or not. If your prediction is correct, you get a fixed payout, but if it's wrong, the contract becomes worthless. Keep reading to learn more.

What is an event contract on Robinhood?

As stated by Robinhood, event contracts are financial derivatives. You can buy them to hold a position and speculate on the outcome of different events. The platform offers these contracts in Yes or No formats: picking Yes means you back the event to happen, and No indicates otherwise.

During our Robinhood prediction markets review, we traded event contracts for sports, politics, culture, and the economy. Regardless of the category, the contract price is between $0.01 and $0.99. When you buy, you can choose to sell your position early or wait until the event settles for a potential payout.

Event contract categories on Robinhood

On the Robinhood app, we saw event contracts across over 10 prediction markets. These are the most important ones to know:

Are Robinhood event contracts legal in the US?

Before proceeding, let’s address this major question. The good news is that the event contracts are legal to trade in the United States. We confirmed this fact since the contracts are offered under Robinhood Derivatives, LLC. Robinhood Derivatives, LLC is regulated by the Commodity Futures Trading Commission (CFTC).

However, the event contracts are not available in Maryland. Meanwhile, traders in Nevada can’t trade on sports events, but will be able to access other prediction market categories.

Buying and selling positions while speculating is different from wagering on fixed odds, and Robinhood doesn’t support the latter at all. Besides, the platform isn’t responsible for the contract prices, unlike sportsbooks that set odds themselves. Let’s take a closer look at how the pricing works up next.

Event contract prices on Robinhood

First off, Robinhood prediction markets operate on a peer-to-peer system. Traders determine the price of each Yes or No contract based on their market activity. When you buy a Yes contract, there has to be someone on the other end selling for the trade to execute. Robinhood’s job is to match the two sides.

So, supply and demand set the price of event contracts on Robinhood. If more traders believe an event will happen, the demand for it increases, and the cost of the Yes contract rises. However, if people doubt the outcome, the rate drops.

Another important fact to mention is that the prices generally reflect how likely the market believes an event is. Let’s consider this NBA event between Denver and Indiana that we saw during our review:

The above means the market believes there’s a 76% chance Denver will win and 25% that they lose (Indiana wins). You can see that the price of Denver’s Yes is the same as Indiana’s No, and Denver’s No is the same as Indiana’s Yes. That’s because they’re opposite outcomes, and the slight $0.01 added is Robinhood's spread.

If more traders keep buying Yes for Denver before the game starts, the price may increase to, say $0.81. That’ll cause the No event contract to drop to $0.20. As such, the cost of Robinhood event contracts can fluctuate before the event settles. For categories like sports, you can even trade live event contracts while the games are ongoing.

Robinhood event contract payout

Each correct prediction for an event contract pays $1. The amount is fixed since the prices are always between $0.01 and $0.99. Therefore, if you buy an event contract for $0.40, and the outcome turns out true, you get $1, meaning a $60 profit.

Note that you can buy many contracts for the same event at once. To illustrate, we purchased 100 contracts from the Robinhood election prediction market at $0.75 each, so the total cost was $75. The prediction was correct, and we received a $100 payout, making a $25 gain.

We can summarize by saying that the lower the event contract price, the higher your potential payout. However, low prices also indicate a small probability that the outcome will be true.

If you score payouts from the event contracts, you can withdraw via ACH transfer or instant bank transfer/debit card. How long it takes to process varies depending on the payment method. Also, Robinhood releases funds for withdrawals within two days after events settle.

Predict event outcomes on Robinhood

Easy sports prediction trading on Robinhood

Robinhood event contract fees and spreads

Trading event contracts on Robinhood is pretty affordable. The platform doesn’t charge fees for adding money to your account at the outset. It only charges $0.01 commission for each contract bought or sold.

Let’s illustrate with the Denver vs Indiana game once again. The Yes option for Denver is $0.76, while No costs $0.25. Adding both gives you $1.01, so when Robinhood pays out $1 to traders with correct predictions, it keeps $0.01.

We also observed that the event contracts sometimes include an exchange fee. For context, Robinhood gets its event contracts from Kalshi or ForecastEx, and both are CFTC-regulated. Kalshi or ForecastEx can add a built-in fee, which is still usually $0.01.

So, instead of $0.76 and $0.25 for opposite event outcomes, you may see $0.76 and $0.26. The latter totals $1.02, and $0.01 goes to Robinhood while $0.01 is for the exchange.

How to start trading event contracts on Robinhood

At this point, we’re sure you’re well-versed on how Robinhood event contracts work. If you’re ready to start trading them, there are two steps involved. First, you have to open an individual investing account, and here’s how:

1. Tap the links on this page to visit the Robinhood site or install the app

2. Click the Sign Up option and enter your details as required

3. Verify your phone number and identity following the onscreen prompts

4. Accept the terms and conditions

5. Submit your registration and wait for approval

In our experience, it may take a few days for Robinhood to review and approve your application. If successful, you’ll receive an email indicating that your new account is ready. Otherwise, the platform will probably ask for identification documents to support your application.

Once your investing account is active, the second step is to register with Robinhood Derivatives. You can only trade event contracts with a Derivatives account, and these are the steps to create one:

1. Switch to the Prediction Markets section via your dashboard

2. Choose a prediction market from the various categories

3. Tap on a Yes or No event contract

4. Follow the subsequent prompts to apply for a Derivatives account

5. Wait for confirmation

Again, watch out for an email message from Robinhood approving your Derivatives account. When it arrives, you can start buying and selling event contracts.

Pros and cons of the Robinhood event contracts

We noted the following upsides and downsides while reviewing event contracts on Robinhood:

Pros and Cons

• Simple Yes/No contracts
• Available on sports, politics, and more
• Regulated by the CFTC

• Third-party platforms offer the contracts

Conclusion – Register and trade event contracts with Robinhood

Event contracts on Robinhood are pretty straightforward. They represent potential real-world outcomes, and you buy Yes/No depending on which you believe will come to pass. Robinhood matches your orders to other traders, and the platform doesn’t influence the contract price at all.

If you’re in the US (except Maryland), you can trade event contracts with Robinhood without issues. The CFTC regulates the service, so it’s legit. Want to get started? We’ve covered how in this guide, so follow the instructions. The first step is to click the links on this page to visit Robinhood.

Robinhood event contracts FAQs