In this guide
Key takeaway: Within prediction markets, a share's price directly reflects the market's assessed probability. When a YES share trades at $0.65, participants collectively estimate a 65% likelihood of that outcome occurring. Grasping this relationship between price and probability forms the bedrock of consistent profitability.
Coming from traditional sports betting backgrounds, prediction market odds operate on entirely different mechanics. You won't encounter fractional odds (5/1), American-style odds (+400), or decimal odds (5.0). Instead, prediction markets employ a transparent framework where the share price itself embodies the implied probability.
Price = Probability
All prediction market contracts split into two opposing positions: YES and NO. These prices converge to approximately $1.00 total (accounting for a modest spread retained by the market maker). Interpretation works as follows:
- YES at $0.72 = The market assigns a 72% probability to the event materialising
- NO at $0.28 = The market assigns a 28% probability the event fails to occur
- YES at $0.50 = Maximum uncertainty — the market holds no clear bias either direction
- YES at $0.95 = Overwhelming likelihood — only a 5% probability of non-occurrence
Calculating Your Expected Value
Expected value (EV) determines whether a position generates profit across repeated trades. The calculation follows this structure:
EV = (Your probability x Potential profit) - ((1 - Your probability) x Potential loss)
Suppose "Event X" trades at $0.40 (40%), yet your analysis suggests the genuine probability sits at 55%. Purchasing YES at $0.40 yields:
- Profit if YES resolves: $1.00 - $0.40 = $0.60
- Loss if NO resolves: $0.40
- EV = (0.55 x $0.60) - (0.45 x $0.40) = $0.33 - $0.18 = +$0.15 per share
Positive EV signals an edge-positive trade. Accumulating hundreds of such positions compounds into substantial gains over time.
The Spread
The gap separating the highest bid (maximum purchase price) from the lowest ask (minimum sale price) constitutes the spread. Polymarket's most active contracts typically display spreads between 1-3 cents. This mirrors sports betting's "vig" but operates at substantially tighter margins:
- Prediction market spread: 1-3% (functionally equivalent to vig)
- Sports betting vig: 5-15% embedded within quoted odds
- Implied overround: Prediction market YES + NO prices approximate $1.00. Sports betting implied probabilities frequently total 110-115%
Reading the Order Book
The PolyGram order book depth visualisation displays every outstanding purchase and sale order across price tiers. This reveals:
- Liquidity: The volume available for execution without substantial slippage
- Support/resistance: Price zones where concentrated orders form barriers, impeding directional movement
- Market sentiment: Whether current activity skews toward accumulation or distribution at prevailing levels
Converting to Traditional Odds
For those preferring 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
- Mistaking price for trade quality: A $0.90 position carries no inherent disadvantage versus a $0.10 position — the determining factor is whether the quoted price accurately reflects true probability
- Neglecting spread costs: Thinly-traded markets often feature 5-10 cent spreads, substantially eroding your mathematical advantage
- Excessive confidence: Before assuming the market miscalculates, consider why thousands of sophisticated traders might hold the opposite view
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