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 indicates a 65% likelihood of that outcome occurring. Grasping this fundamental relationship between price and probability forms the cornerstone of 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-style odds (+400), or decimal odds (5.0). Instead, prediction markets employ a straightforward mechanism: the share price itself encodes the implied probability.
Price = Probability
Each prediction market contract presents two opposing outcomes: YES and NO. The combined prices consistently approximate $1.00 (accounting for a modest spread retained by the market maker). Here's the interpretation:
- YES at $0.72 = Market consensus suggests 72% likelihood the event materialises
- NO at $0.28 = Market consensus suggests 28% likelihood the event does not materialise
- YES at $0.50 = Equiprobable outcome — the market shows no clear bias either direction
- YES at $0.95 = Overwhelming likelihood — merely 5% probability of non-occurrence
Calculating Your Expected Value
Expected value (EV) determines whether a trade generates profit over extended periods. The calculation follows this straightforward formula:
EV = (Your probability x Potential profit) - ((1 - Your probability) x Potential loss)
Illustration: Suppose "Event X" trades at $0.40 (40% probability), yet your analysis suggests the genuine probability reaches 55%. Should you purchase YES at $0.40:
- Profit scenario if YES materialises: $1.00 - $0.40 = $0.60
- Loss scenario 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 signals a mathematically sound trade. Accumulating hundreds of such positive-EV positions generates substantial returns through compounding.
The Spread
The gap separating the highest purchase bid from the lowest sale ask represents the spread. On Polymarket, actively traded markets typically exhibit spreads ranging from 1-3 cents. This resembles the "vig" in sports betting but 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 show YES + NO prices approaching $1.00. Sports betting typically inflates implied probabilities to 110-115%
Reading the Order Book
The PolyGram order book depth display reveals all outstanding purchase and sale orders at respective price tiers. This information illuminates:
- Liquidity: The volume available for purchase or sale whilst maintaining stable pricing
- Support/resistance: Price zones containing concentrated orders that generate "walls" impeding price shifts
- Market sentiment: Whether buying or selling pressure dominates at the prevailing price level
Converting to Traditional Odds
Should traditional odds formats feel more intuitive:
| 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 share carries no inherent disadvantage versus a $0.10 share — only whether the quoted price aligns with genuine probability matters
- Neglecting the spread: Thinly traded markets may exhibit 5-10 cent spreads, substantially eroding your mathematical advantage
- Excessive conviction: Before assuming the market misprices an outcome, consider why thousands of competing traders hold opposing views
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