In this guide
Key takeaway: Within prediction markets, share price functions as the probability estimate. When a YES share trades at $0.65, participants collectively signal a 65% likelihood that the outcome will occur. Grasping this fundamental relationship between price and probability underpins successful market participation.
Coming from traditional sports wagering, prediction market odds operate quite differently. You will not encounter fractional odds (5/1), American-style odds (+400), or decimal odds (5.0). Instead, prediction markets employ a more straightforward approach: the share price itself encodes the implied probability.
Price = Probability
All prediction market contracts feature two opposing positions: YES and NO. The combined prices approximate $1.00 (with a modest spread retained by the market maker). Here is what the numbers mean:
- YES at $0.72 = Collective belief: 72% probability the event materialises
- NO at $0.28 = Collective belief: 28% probability the event does not materialise
- YES at $0.50 = Maximum uncertainty — the market shows no lean either direction
- YES at $0.95 = Overwhelming consensus — merely 5% chance of non-occurrence
Calculating Your Expected Value
Expected value (EV) reveals whether a position generates profit over repeated trades. The calculation follows this pattern:
EV = (Your probability x Potential profit) - ((1 - Your probability) x Potential loss)
Suppose "Event X" trades at $0.40 (40% implied), yet your analysis suggests the true likelihood is 55%. Purchasing YES at $0.40 yields:
- Gain if YES materialises: $1.00 - $0.40 = $0.60
- Loss if NO materialises: $0.40
- EV = (0.55 x $0.60) - (0.45 x $0.40) = $0.33 - $0.18 = +$0.15 per share
Positive EV indicates the position has favourable odds in expectation. Across dozens or hundreds of such trades, positive EV accumulates into tangible wealth.
The Spread
The gap separating the highest willing buyer price from the lowest willing seller price constitutes the spread. On Polymarket, actively traded markets typically feature spreads of 1-3 cents. This mirrors the "vig" in sports betting yet remains substantially tighter:
- Prediction market spread: 1-3% (analogous to vig)
- Sports betting vig: 5-15% embedded within quoted odds
- Implied overround: Prediction market YES + NO prices hover near $1.00. Sports betting implied probabilities frequently total 110-115%
Reading the Order Book
The PolyGram order book depth chart displays all outstanding buy and sell orders stacked at each price tier. It reveals:
- Liquidity: Transaction volume achievable without substantial price slippage
- Support/resistance: Price zones where concentrated orders form "walls" that dampen movement
- Market sentiment: Whether buyers or sellers dominate interest at prevailing valuations
Converting to Traditional Odds
Should you prefer conventional odds notation:
| Market Price | Implied Prob. | Decimal Odds | American Odds |
| $0.80 | 80% | 1.25 | -400 |
| $0.65 | 65% | 1.54 | -186 |
| $0.50 | 50% | 2.00 | +100 |
| $0.25 | 25% | 4.00 | +300 |
| $0.10 | 10% | 10.00 | +900 |
Common Mistakes
- Treating price as an indicator of trade quality: A $0.90 position carries no inherent advantage over a $0.10 position — only whether the quoted price diverges from genuine probability matters
- Neglecting the spread: Thinly traded markets may exhibit 5-10 cent spreads, which erodes your statistical advantage
- Excessive certainty: Before betting against market consensus, consider why thousands of participants hold a different view
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