Hey there. Before we dive in, a quick ask: I’m looking to chat with readers for our Second Act series, which explores the surprising, creative and inspiring ways Canadians are reinventing retirement. Maybe you’ve started a business, picked up an unexpected job, discovered a passion project or completely changed course after leaving full-time work. If that’s you, or if you’re planning your own second act, I’d love to hear from you at mraman@globeandmail.com.

Now, on to today’s topic. I‘ve reported extensively on prediction markets over the past few months, and the question I get asked most often is: How is this any different from gambling? Let’s get into it.

Whether prediction market trading is the same as gambling is a fair question. On the surface, both involve putting money on an uncertain future outcome. But once you dig in, the differences in how they work, what you can trade on and how they’re regulated put them into different categories.

Prediction markets allow people to buy and sell contracts tied to the likelihood of a future event. Most contracts are based on a simple yes-or-no question: Will inflation be above a certain level? Will the Bank of Canada cut interest rates by a certain date?

The price of a contract reflects what the market expects the odds are. If a “yes” contract is trading at 30 cents, the market is effectively assigning a roughly 30-per-cent probability to that outcome. If your prediction is correct, the contract pays out $1, which means the investor would get $1 for every correct trade that was made from the platform. If wrong, it’s worthless.

What is gambling?

Gambling is when people wager money on an unknown outcome, such as a sporting event through a sportsbook, and the betting operator sets the odds. Bettors are typically wagering against the house rather than against one another.

One of the biggest differences is what happens after you place a trade.

In traditional gambling, you’re generally locked in until the event ends.

With prediction markets, traders can usually buy and sell contracts before they settle, allowing them to react to new information and adjust their positions over time.

Prediction markets also operate more like a marketplace, where participants trade with one another. Sports betting, by contrast, is typically a transaction between the bettor and the sportsbook.

What you can wager on prediction markets in Canada is limited. Regulators currently only allow contracts tied to economic indicators, financial markets and climate-related events.

This is where Canada’s rules differ sharply from those in the United States.

Contracts on sports, elections and political outcomes, some of the most popular prediction market contracts in the United States, are not permitted in Canada. Approved contracts must also generally have a term to maturity of at least 30 days.

Gambling in Canada can cover a wide array of events, such as betting on sporting events.

Many of you were confused as to why I’ve previously classified people placing wagers on prediction markets as “investors.”

Here’s the main reason why: In Canada, prediction market contracts are treated as derivatives, meaning they are regulated as financial instruments rather than as gambling products.

Currently, only a small number of firms have received approval from the Canadian Investment Regulatory Organization to offer these contracts. Federal securities regulators oversee the framework, although provinces and territories ultimately determine which products can be offered within their jurisdictions.

Gambling, meanwhile, falls under gaming laws and is regulated by provincial gaming authorities.

That depends on who you ask.

Critics argue that prediction markets and gambling are fundamentally the same because both involve risking money on uncertain outcomes, and it’s all-or-nothing. Supporters counter that prediction markets function more like financial markets, with tradable contracts and regulatory oversight similar to other investment products.

What do you think? Do you have any other questions? Drop me a line at mraman@globeandmail.com and I’ll try my best to answer.

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