In this guide
Key takeaway: Within prediction markets, a share's price functions as the market's probability assessment. When a YES share trades at $0.65, participants collectively estimate a 65% likelihood of that outcome occurring. Grasping this fundamental relationship between price and probability underpins all successful market participation.
Coming from traditional sports wagering, prediction market odds operate quite differently. You won't encounter fractional odds (5/1), American odds (+400), or decimal odds (5.0). Rather, prediction markets employ a straightforward approach: the share price itself embodies the implied probability directly.
Price = Probability
Each prediction market contract splits into two opposing positions: YES and NO. Their prices consistently total roughly $1.00 (accounting for a modest spread captured by the market maker). Interpreting them works like this:
- YES at $0.72 = Market assesses a 72% likelihood the outcome materialises
- NO at $0.28 = Market assesses a 28% likelihood the outcome does not materialise
- YES at $0.50 = Balanced uncertainty — neither side holds market conviction
- YES at $0.95 = Overwhelming consensus — merely a 5% probability of non-occurrence
Calculating Your Expected Value
Expected value (EV) reveals whether a position generates profits across repeated trades. The calculation follows this framework:
EV = (Your probability x Potential profit) - ((1 - Your probability) x Potential loss)
Illustration: Suppose "Event X" trades at $0.40 (40% implied), yet your assessment suggests 55% actual probability. Purchasing YES at $0.40 yields:
- Upside if YES materialises: $1.00 - $0.40 = $0.60
- Downside 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 signals a mathematically sound trade. Accumulated across numerous positions, positive EV compounds into tangible gains.
The Spread
The gap separating the highest purchase bid from the lowest sale ask represents the spread. On Polymarket, actively traded contracts typically show spreads of 1-3 cents. This mirrors the "vig" concept in sports betting, though substantially tighter:
- Prediction market spread: 1-3% (equivalent to vig)
- Sports betting vig: 5-15% embedded within quoted odds
- Implied overround: Prediction market YES + NO prices approach $1.00. Sports betting implied probabilities frequently reach 110-115%
Reading the Order Book
The PolyGram order book depth display presents every queued purchase and sale order across price tiers. This information communicates:
- Liquidity: Transaction volume achievable without substantially shifting market price
- Support/resistance: Price zones hosting concentrated orders that function as barriers against rapid movement
- Market sentiment: Whether accumulated demand or supply dominates at prevailing valuations
Converting to Traditional Odds
Should you prefer conventional odds representations:
| 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
- Conflating price with trade quality: A $0.90 contract isn't automatically superior or inferior to a $0.10 contract — what determines value is whether the quoted price accurately reflects true probability
- Underestimating spread impact: Thinly traded markets can exhibit spreads of 5-10 cents, substantially eroding your mathematical advantage
- Excessive conviction: Should you believe the market is mispriced, consider why thousands of participants hold opposing views before committing capital
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