Prediction Market Returns Calculator: The Math Behind Every Trade
Every prediction market trade is a straightforward expected value calculation. Understanding the math means you never enter a trade blindly — you know exactly what you need to be right, how often, and at what probability to break even.
Basic Return Calculation
For a YES share purchased at price P:
- Win return: (1 - P) / P × 100% = your percentage profit if YES wins
- Loss: 100% of your stake if NO wins
- Break-even probability: P (the market price IS the break-even probability)
Examples:
- YES at $0.20: win = +400%, break-even = 20%
- YES at $0.50: win = +100%, break-even = 50%
- YES at $0.75: win = +33%, break-even = 75%
- YES at $0.90: win = +11%, break-even = 90%
Expected Value Formula
EV = (Your probability × Win amount) - ((1 - Your probability) × Stake)
For a $100 trade on YES at $0.40, with your estimated probability at 55%:
- Win amount if YES: $150 (receive $250, paid $100)
- Loss if NO: -$100
- EV = (0.55 × $150) - (0.45 × $100) = $82.50 - $45 = +$37.50 expected value
How to Use This in Practice
- Before every trade, write your probability estimate FIRST
- Calculate break-even probability (= market price)
- If your estimate > break-even by more than the spread: strong buy signal
- If your estimate < break-even: consider NO shares instead
- If your estimate ≈ break-even: skip — insufficient edge
Position Size Calculator
Using half-Kelly: f = 0.5 × (bp - q) / b
- For a trade where your p = 0.65, market = 0.40: b = 1.5, q = 0.35
- Full Kelly: (1.5 × 0.65 - 0.35) / 1.5 = 0.42 (42% of bankroll)
- Half Kelly: 21% of bankroll — still cap at 5% per position rule
FAQ
- Is there an automated calculator for prediction market trades?
- PolyGram shows estimated fill price, shares received, and potential payout in the trade interface before confirmation. Manual EV calculation is still valuable for pre-trade analysis.
- How do spreads affect the return calculation?
- Adjust the effective purchase price by adding half the spread. If YES is quoted at bid=0.38, ask=0.42, your effective entry is ~0.42 not 0.40.