In this guide
Key takeaway: Within prediction markets, a share's price functions as the probability itself. When a YES share trades at $0.65, the collective market assessment reflects a 65% likelihood that the outcome will occur. Grasping this relationship between price and probability forms the cornerstone of successful trading strategies.
If you have experience with sports betting, prediction market odds operate quite differently. You will not encounter fractional odds (5/1), American odds (+400), or decimal odds (5.0). Instead, prediction markets employ a more straightforward mechanism: share prices function as direct proxies for implied probability.
Price = Probability
All prediction market contracts feature two opposing sides: YES and NO. The combined prices typically total approximately $1.00 (accounting for a modest spread retained by the market maker). Interpreting them works as follows:
- YES at $0.72 = The market assesses a 72% likelihood of occurrence
- NO at $0.28 = The market assesses a 28% likelihood of non-occurrence
- YES at $0.50 = An even split — market participants lack a clear bias
- YES at $0.95 = Overwhelming likelihood — merely a 5% probability of the opposite outcome
Calculating Your Expected Value
Expected value (EV) determines whether a position generates profit over time. The calculation follows this straightforward formula:
EV = (Your probability x Potential profit) - ((1 - Your probability) x Potential loss)
Suppose a market quotes "Event X" at $0.40 (40%), yet your analysis suggests the genuine probability stands at 55%. Should you acquire YES at $0.40:
- 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 signals a mathematically sound trade. Across numerous transactions, positive EV accumulates into tangible wealth creation.
The Spread
The gap separating the highest bid (maximum purchase price) from the lowest ask (minimum sale price) constitutes the spread. On Polymarket, actively traded markets typically display spreads of 1-3 cents. This parallels the "vig" found 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 and NO prices approximate $1.00 combined. Sports betting implied probabilities frequently reach 110-115%
Reading the Order Book
The PolyGram order book depth chart displays all outstanding bids and offers across price tiers. This reveals:
- Liquidity: The volume available for purchase or sale without substantially shifting the price
- Support/resistance: Price zones containing concentrated orders, forming "walls" that impede price swings
- Market sentiment: Whether prevailing interest tilts toward acquisition or disposition at current 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
- Equating price with trade quality: A $0.90 share carries no inherent disadvantage versus a $0.10 share — only whether the quoted price aligns with genuine likelihood matters
- Neglecting the spread: Thinly traded markets may exhibit spreads of 5-10 cents, which can erode your statistical advantage
- Excessive certainty: When you suspect the market has mispriced something, consider why thousands of participants might hold a different view
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