A prediction market example, from open to settlement.

One trade followed all the way through, from the price you pay to the number that decides it. The figures are illustrative, but the mechanics are the ones a live window runs on.

What is being traded?

A RAVA market asks how much credit stress lands inside a fixed window. The settlement number is the change in a published credit index across that window. Two shares divide a dollar between them, and sHY pays more the higher the number finishes while cHY takes the rest.

What does it cost to take a side?

Say stress is trading at 18 cents. You buy one stress share for 18 cents and that is the entire cost. Nothing is borrowed and no margin is posted, so 18 cents is also the most the position can lose.

What do different landings pay?

The band on the current series runs from a floor of minus 5 percent to a cap of plus 12 percent, and the payout is the fraction of that band the number clears.

Buying at 18 cents puts break even near minus 2 percent, since that is the landing 18 cents implies. Finish above it and the position gains, finish below and it loses, and in both directions the size of the move decides the size of the result.

What decides the final number?

An independent administrator publishes the index level every day under a public methodology. At the end of the window, settlement reads that level and applies a payout rule that was published before trading opened, with no vote and nothing left to interpret.

What would the same trade look like in a binary market?

You would pick a threshold instead, say above 5 percent. Land at 4.9 and you collect nothing, despite having called the direction correctly. Land at 5.1 and you collect the whole dollar. The 53 cents that a landing at plus 4 percent returns here has no equivalent there, because a threshold has no middle.

That difference is the subject of scalar vs binary prediction markets, and how an order book works covers what you pay to get in and out.

Where the real numbers live.

The published band and the settlement rule for the live series are in the index and settlement, and markets shows what is listed now.