In this guide
Key takeaway: Within prediction markets, share price functions as the probability estimate. 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 underpins all successful market participation.
Coming from a sports betting background, prediction market odds operate quite differently. You will not encounter fractional odds (5/1), American odds (+400), or decimal odds (5.0). Rather, prediction markets employ a more straightforward approach: share prices serve as direct probability indicators.
Price = Probability
Every prediction market contract splits into two opposing positions: YES and NO. These prices aggregate to roughly $1.00 (accounting for a modest spread retained by the market maker). The interpretation works as follows:
- YES at $0.72 = Market consensus suggests 72% likelihood the event materialises
- NO at $0.28 = Market consensus suggests 28% likelihood the event fails to occur
- YES at $0.50 = Balanced uncertainty — the market holds 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) establishes whether a position generates profit across repeated trades. The calculation follows this straightforward structure:
EV = (Your probability x Potential profit) - ((1 - Your probability) x Potential loss)
Illustration: Suppose "Event X" trades at $0.40 (40% implied), yet your analysis suggests the genuine probability reaches 55%. Should you acquire YES at $0.40:
- 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 an edge in expectation. Across numerous positions, positive EV accumulates into tangible wealth creation.
The Spread
The gap separating the highest purchase offer (bid) from the minimum sale offer (ask) constitutes the spread. On Polymarket, actively traded 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% (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 often produces implied totals of 110–115%
Reading the Order Book
The PolyGram order book depth chart displays all outstanding purchase and sale orders arranged by price tier. This reveals:
- Liquidity: The volume available to transact without substantially shifting market price
- Support/resistance: Price zones containing substantial order clusters, forming barriers against directional movement
- Market sentiment: Whether aggregate interest tilts toward acquisition or liquidation at prevailing levels
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 contract carries no inherent disadvantage versus a $0.10 contract — only whether the quoted price aligns with genuine probability matters
- Overlooking the spread: Thinly traded markets may exhibit 5–10 cent spreads, substantially eroding your theoretical advantage
- Excessive conviction: Before assuming the market misprices an outcome, consider why thousands of participants hold differing views
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