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 relationship between price and probability forms the cornerstone of successful market participation.
Coming from traditional sports wagering, prediction market odds operate quite differently. You will not encounter fractional odds (5/1), American-style odds (+400), or decimal odds (5.0). Instead, prediction markets employ a straightforward mechanism: share prices serve as direct probability indicators.
Price = Probability
All prediction market contracts split into two opposing positions: YES and NO. The combined prices consistently approximate $1.00 (accounting for a modest spread retained by the market maker). The interpretation works as follows:
- YES at $0.72 = Consensus view places 72% odds on occurrence
- NO at $0.28 = Consensus view places 28% odds against occurrence
- YES at $0.50 = Equilibrium state — no clear market bias
- YES at $0.95 = Overwhelming consensus — merely 5% probability of non-occurrence
Calculating Your Expected Value
Expected value (EV) reveals whether a position generates profits over extended trading horizons. The calculation follows this straightforward approach:
EV = (Your probability x Potential profit) - ((1 - Your probability) x Potential loss)
Consider this scenario: "Event X" trades at $0.40 (40% implied), yet your analysis suggests 55% true probability. 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 an edge-positive position. Across numerous trades, favourable expected values accumulate into tangible wealth creation.
The Spread
Spreads represent the gap separating the highest bid (best purchase offer) from the lowest ask (best sale offer). On Polymarket, actively traded contracts typically show spreads of 1-3 cents. This mirrors the "vig" concept from sports betting yet proves substantially tighter:
- Prediction market spread: 1-3% (comparable to vig)
- Sports betting vig: 5-15% embedded within quoted odds
- Implied overround: Prediction markets see YES + NO sum near $1.00. Sports betting typically yields 110-115% combined implied probability
Reading the Order Book
The PolyGram order book depth chart displays all unfilled buy and sell orders across price tiers. This information reveals:
- Liquidity: Volume available for transaction at current levels without significant slippage
- Support/resistance: Price zones containing concentrated orders that impede directional movement
- Market sentiment: Whether aggregate interest skews toward accumulation or distribution at prevailing rates
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 quality indicator: A $0.90 position carries no inherent advantage over a $0.10 position — only whether pricing accurately reflects genuine probability matters
- Overlooking spread costs: Thin markets may display 5-10 cent spreads, substantially eroding your mathematical advantage
- Excessive conviction: Before assuming the market errs, consider whether you possess insight unavailable to thousands of competing participants
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