Payout vs Profit
Definition
Payout is the amount a winning contract settles at, usually $1 per contract. Profit is the payout minus the purchase price and any fees and other costs. The CFTC puts it plainly: a trader's 'profit is the difference between their initial investment and the payout,' and 'taxes and fees may also affect a trader's return on investment.'
Why it matters
Headline payouts overstate what a trader keeps, especially on cheap contracts where a one-cent minimum fee is a large share of the price. Investors should calculate profit on the full cost, including fees on both entry and any exit, and compare it with the amount at risk.
Common misconceptions
- •A $1 payout is not $1 of profit.
- •Fees apply to the trade, so selling early incurs a second fee.
- •Return on a winning trade is not the same as expected return; losses must be counted.
- •The label is only a starting point. Investor outcomes usually depend on the governing documents, cash-flow priority, valuation policy, disclosure quality, and manager discretion surrounding the term, not just the shorthand definition used in marketing materials.
Technical details
Worked example on Kalshi's standard schedule (illustrative)
Buy 100 yes at $0.60: price $60.00; fee 0.07 x 100 x 0.60 x 0.40 = $1.68; outlay $61.68.
Win: payout $100.00; profit $38.32.
Lose: payout $0; loss $61.68.
Exit early at $0.75: proceeds $75.00; fee $1.32; profit $75.00 - $61.68 - $1.32 = $12.00.
Fee shape
Kalshi's and Polymarket's taker fees both scale with price x (1 - price), so the dollar fee per contract is largest at 50 cents.
Polymarket's documentation: a trade at 30 cents 'incurs the same dollar fee as a trade at 70 cents'; some categories, such as geopolitics, are fee-free and makers pay no fee.
How investors apply the term
Investors usually apply this term by tying the definition back to the controlling documents and then asking which cash flows, rights, restrictions, or valuation assumptions it changes. A useful review looks at the term alongside fees, leverage, liquidity, reporting frequency, and manager discretion rather than treating it as a standalone concept.
The practical diligence test is simple: identify who benefits if the assumption is wrong, who has control when conditions change, and what evidence the investor receives after closing. Terms that cannot be reconciled to documents, cash movements, and monitoring data should be treated as marketing shorthand until proven otherwise.
Frequently asked questions
- If a contract pays $1, how much profit do I make?
- The $1 minus what you paid and the fees. Buying 100 yes contracts at 60 cents costs $60.00, plus a $1.68 fee on Kalshi's standard schedule. If yes wins, the payout is $100.00 and the profit is $38.32, a 62% return on $61.68 outlaid. If no wins, the loss is $61.68.
- Does selling before settlement change the profit?
- Yes. Selling realizes the current bid less any fee instead of $1 or $0. Selling the same 100 contracts at 75 cents brings $75.00 less a $1.32 fee, for a profit of $12.00 after both fees.
- Do taxes matter?
- Yes, and treatment depends on the product and the trader's situation. The CFTC notes that taxes may affect return; AltStreet's category FAQs cover how prediction market winnings are reported.