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 of that outcome occurring. Grasping this fundamental relationship between price and probability forms the cornerstone of consistent trading profitability.
If your background includes sports betting, prediction market odds operate on entirely different mechanics. You will not encounter fractional odds (5/1), American odds (+400), or decimal odds (5.0). Instead, prediction markets employ a straightforward mechanism: share price directly encodes the underlying probability.
Price = Probability
All prediction market contracts split into two opposing positions: YES and NO. These prices consistently sum to roughly $1.00 (accounting for a modest market-maker spread). Here is the interpretation framework:
- YES at $0.72 = Collective view suggests 72% likelihood the event materialises
- NO at $0.28 = Collective view suggests 28% likelihood the event fails to materialise
- YES at $0.50 = Even odds — the market shows no clear bias either direction
- YES at $0.95 = Overwhelming consensus — merely a 5% probability of non-occurrence
Calculating Your Expected Value
Expected value (EV) determines whether a position generates profit over repeated trades. The calculation follows this straightforward approach:
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 puts true odds at 55%. Purchasing YES at $0.40 yields:
- Upside if YES resolves: $1.00 - $0.40 = $0.60
- Downside 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 a mathematically sound trade. Across dozens or hundreds of such positions, positive EV compounds into tangible wealth accumulation.
The Spread
The gap separating the highest bid (what buyers offer) from the lowest ask (what sellers demand) constitutes the spread. On Polymarket, well-traded markets typically exhibit spreads ranging 1-3 cents. This mirrors the "vig" concept in sports betting, though 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 sum near $1.00. Sports betting frequently shows combined implied probabilities of 110-115%
Reading the Order Book
The PolyGram order book depth chart displays all active purchase and sale orders stacked at each price tier. This reveals:
- Liquidity: Volume available for trading without substantially shifting price
- Support/resistance: Price zones where substantial order clusters form "walls" that dampen price swings
- Market sentiment: Whether aggregate interest leans toward accumulation or distribution at prevailing levels
Converting to Traditional Odds
Should you prefer 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 contract does not automatically represent a superior or inferior opportunity versus a $0.10 contract — only whether the quoted price diverges from your estimated true probability matters
- Overlooking the spread: Thin markets frequently exhibit spreads of 5-10 cents, which can substantially erode your mathematical advantage
- Excessive conviction: Before assuming the market has mispriced an outcome, consider whether thousands of competing traders possess information or reasoning you lack
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