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 event will occur. Grasping this fundamental relationship between price and probability underpins successful trading strategies.
Those transitioning from traditional sports betting will notice that prediction market odds operate quite differently. You won't encounter fractional odds (5/1), American odds (+400), or decimal odds (5.0). Instead, prediction markets employ a more straightforward mechanism: share prices serve as a direct proxy for implied probability.
Price = Probability
All prediction market contracts contain two opposing positions: YES and NO. Their prices invariably sum to roughly $1.00 (accounting for a modest spread retained by the market maker). Here's the breakdown:
- YES at $0.72 = Market assesses a 72% likelihood the event materialises
- NO at $0.28 = Market assesses a 28% likelihood the event does not materialise
- YES at $0.50 = Complete uncertainty — the market holds no clear bias
- YES at $0.95 = Overwhelming likelihood — merely a 5% probability of non-occurrence
Calculating Your Expected Value
Expected value (EV) establishes whether a trade generates profit across repeated transactions. The calculation follows this structure:
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 purchase 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
When EV turns positive, the trade carries favourable odds mathematically. Executing hundreds of such positive-EV trades compounds 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. On Polymarket, actively-traded markets typically display spreads ranging from 1-3 cents. This mirrors the "vig" found in sports betting yet remains substantially tighter:
- Prediction market spread: 1-3% (functionally equivalent to vig)
- Sports betting vig: 5-15% embedded within quoted odds
- Implied overround: Prediction markets see YES + NO prices approach $1.00. Sports betting typically shows implied probabilities summing to 110-115%
Reading the Order Book
The PolyGram order book depth display reveals all outstanding buy and sell orders across price tiers. This information communicates:
- Liquidity: The volume available for purchase or sale without substantially shifting market price
- Support/resistance: Price zones containing concentrated orders that form "walls" resisting price shifts
- Market sentiment: Whether current price levels attract stronger buying or selling momentum
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 share carries no inherent disadvantage versus a $0.10 share — profitability hinges solely on whether pricing aligns with actual probability
- Neglecting the spread: Thinly-traded markets can exhibit spreads of 5-10 cents, substantially eroding your mathematical advantage
- Excessive certainty: When you believe the market has mispriced an outcome, consider why thousands of competing traders maintain their current positions
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