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 outcome will occur. Grasping this fundamental relationship between price and probability forms the cornerstone of successful market participation.
Those transitioning from traditional sports wagering will notice that prediction market odds operate on entirely different principles. Fractional odds (5/1), American odds (+400), and decimal odds (5.0) do not exist here. Instead, prediction markets employ a more transparent approach: the share price itself embodies the implied probability.
Price = Probability
Each prediction market contract splits into two opposing positions: YES and NO. Their prices consistently sum to roughly $1.00 (accounting for a modest spread retained by the market operator). The interpretation follows this pattern:
- YES at $0.72 = Collective belief suggests 72% likelihood of occurrence
- NO at $0.28 = Collective belief suggests 28% likelihood of non-occurrence
- YES at $0.50 = Perfectly balanced — market shows no lean either direction
- YES at $0.95 = Overwhelming consensus — merely 5% probability of the opposite outcome
Calculating Your Expected Value
Expected value (EV) serves as the metric for assessing whether a trade generates profit across repeated attempts. The calculation remains straightforward:
EV = (Your probability x Potential profit) - ((1 - Your probability) x Potential loss)
Illustration: Suppose "Event X" trades at $0.40 (40%), yet your analysis suggests the genuine probability reaches 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
Positive EV indicates a trade with profitable expectations. Across numerous trades, positive EV accumulates into tangible wealth creation.
The Spread
The gap separating the highest purchase offer (bid) from the lowest sale offer (ask) constitutes the spread. Polymarket's most actively traded contracts typically feature spreads between 1-3 cents. This mirrors the "vig" concept in sports betting, though substantially narrower:
- Prediction market spread: 1-3% (functionally equivalent to vig)
- Sports betting vig: 5-15% embedded within the odds structure
- Implied overround: Prediction market YES and NO prices converge near $1.00. Sports betting implied probabilities frequently total 110-115%
Reading the Order Book
The PolyGram order book depth display reveals all outstanding purchase and sale orders stacked at various price tiers. This information communicates:
- Liquidity: The volume available for transacting without substantially shifting the price
- Support/resistance: Price zones where substantial orders accumulate, forming "barriers" that impede price shifts
- Market sentiment: Whether buying enthusiasm or selling pressure dominates at present valuations
Converting to Traditional Odds
For those preferring 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
- Treating price as a quality indicator: A $0.90 share carries no inherent advantage or disadvantage versus a $0.10 share — only whether the valuation aligns with true likelihood matters
- Overlooking the spread: Thinly traded markets may exhibit spreads of 5-10 cents, substantially eroding your profit margin
- Excessive conviction: Before assuming the market has mispriced something, consider why thousands of participants hold the opposite view
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