In this guide
Key takeaway: Within prediction markets, a share's price functions as the market's probability estimate. When a YES share trades at $0.65, participants collectively assess a 65% likelihood of that outcome occurring. 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. Fractional odds (5/1), American odds (+400), and decimal odds (5.0) do not appear here. Instead, prediction markets employ a more transparent mechanism: share prices function as direct probability indicators.
Price = Probability
All prediction market contracts split into two opposing positions: YES and NO. These prices consistently total approximately $1.00 (accounting for a modest spread retained by the market maker). Interpreting them works as follows:
- YES at $0.72 = Collective view suggests 72% probability the outcome materialises
- NO at $0.28 = Collective view suggests 28% probability the outcome fails to materialise
- YES at $0.50 = Equiprobable scenario — market shows no lean either direction
- YES at $0.95 = Overwhelming likelihood — merely 5% probability of the opposite outcome
Calculating Your Expected Value
Expected value (EV) establishes whether a position generates profit across repeated trades. The calculation follows this straightforward approach:
EV = (Your probability x Potential profit) - ((1 - Your probability) x Potential loss)
Suppose a market quotes "Event X" at $0.40 (40% implied), yet you assess genuine probability at 55%. Purchasing YES at $0.40 yields:
- 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 signals an edge-positive trade. Executed repeatedly across numerous positions, positive EV compounds into measurable wealth accumulation.
The Spread
The gap separating the highest purchase price (bid) from the lowest sale price (ask) constitutes the spread. Polymarket's active markets typically exhibit spreads ranging 1-3 cents. This mirrors sports betting's "vig" mechanism but operates at substantially tighter margins:
- 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 books typically show implied probabilities totalling 110-115%
Reading the Order Book
The PolyGram order book depth display presents all outstanding buy and sell orders arranged by price tier. This reveals:
- Liquidity: Volume available for purchase or sale without substantially shifting the market price
- Support/resistance: Price tiers hosting concentrated order clusters, forming "walls" that constrain price shifts
- Market sentiment: Whether aggregate demand or supply dominates at prevailing valuations
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
- Treating price as a quality signal: A $0.90 share carries no inherent advantage over a $0.10 share — only whether the quoted price aligns with true probability matters
- Neglecting the spread: Thinly traded markets sometimes display spreads of 5-10 cents, substantially eroding your profit margin
- Excessive conviction: Before assuming the market misprices an outcome, consider why thousands of competing traders hold opposing views
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