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 view is that the outcome has a 65% likelihood of occurring. Grasping this fundamental relationship between price and probability forms the cornerstone of successful market participation.
Those transitioning from traditional sports betting will notice that prediction market odds operate quite differently. You won't 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 directly reflects the market's probability assessment.
Price = Probability
All prediction market contracts contain two opposing positions: YES and NO. The combined prices typically total around $1.00 (accounting for a modest spread retained by the market maker). Interpreting them works like this:
- YES at $0.72 = The market assesses a 72% likelihood that the event will occur
- NO at $0.28 = The market assesses a 28% likelihood that the event will not occur
- YES at $0.50 = Perfectly balanced uncertainty — neither outcome appears favoured
- YES at $0.95 = Extremely probable — only a 5% possibility of the opposite result
Calculating Your Expected Value
Expected value (EV) serves as the metric for determining whether a given trade will generate profits over time. The calculation follows this straightforward equation:
EV = (Your probability x Potential profit) - ((1 - Your probability) x Potential loss)
Consider this scenario: "Event X" is quoted at $0.40 (representing 40%), yet you personally estimate the genuine probability at 55%. Should you purchase YES at $0.40:
- Profit 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
When EV turns positive, the trade carries favourable odds in expectation. Across numerous transactions, accumulating positive EV translates into tangible wealth accumulation.
The Spread
The gap separating the highest purchase offer (best bid) from the lowest sale offer (best ask) constitutes the spread. Polymarket's most actively traded markets generally exhibit spreads ranging from 1-3 cents. This functions similarly to the "vig" in sports betting, though substantially narrower:
- Prediction market spread: 1-3% (equivalent to vig)
- Sports betting vig: 5-15% embedded within the quoted odds
- Implied overround: Prediction market YES and NO prices aggregate near $1.00. Sports betting implied probabilities frequently aggregate to 110-115%
Reading the Order Book
The PolyGram order book depth chart displays all outstanding buy and sell orders arranged by price tier. This information reveals:
- Liquidity: The volume available for purchase or sale without substantially shifting the market price
- Support/resistance: Price points where substantial orders congregate, forming "barriers" that impede price fluctuations
- Market sentiment: Whether purchasing demand or selling pressure dominates at prevailing price levels
Converting to Traditional Odds
Should you prefer working with 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 share is not automatically inferior to a $0.10 share — the determining factor is whether the quoted price accurately mirrors the genuine probability
- Overlooking the spread: In thinly traded markets, spreads can widen to 5-10 cents, substantially eroding your potential advantage
- Excessive conviction: Before assuming the market has mispriced something, consider whether you possess insight that thousands of competing traders have overlooked
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