In this guide
Key takeaway: Within prediction markets, a share's market price directly encodes the probability. When a YES share trades at $0.65, participants collectively assess a 65% likelihood of the outcome occurring. Grasping this price-probability equivalence forms the bedrock of successful market participation.
Coming from traditional sports wagering, prediction market odds operate quite differently. You will not encounter fractional odds (5/1), American odds (+400), or decimal odds (5.0). Instead, prediction markets employ a straightforward mechanism: share prices function as direct probability estimates.
Price = Probability
Each prediction market contract splits into two opposing positions: YES and NO. These prices converge to roughly $1.00 total (accounting for a modest spread retained by liquidity providers). Interpretation follows this pattern:
- YES at $0.72 = Collective market view: 72% probability of occurrence
- NO at $0.28 = Collective market view: 28% probability of non-occurrence
- YES at $0.50 = Genuine uncertainty — neither outcome favoured
- YES at $0.95 = Strong consensus — merely 5% downside risk
Calculating Your Expected Value
Expected value (EV) establishes whether a position generates profit across repeated trades. 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% implied), yet your assessment suggests 55% true likelihood. Purchasing YES at $0.40 yields:
- Gain if YES resolves: $1.00 - $0.40 = $0.60
- Outlay 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. Executing numerous positive-EV positions compounds gains into substantial wealth accumulation.
The Spread
The gap separating the highest purchase offer from the lowest sale offer constitutes the spread. On Polymarket, actively traded contracts typically display spreads of 1-3 cents. This mirrors sports betting's "vig" but proves substantially tighter:
- Prediction market spread: 1-3% (equivalent to vig)
- Sports betting vig: 5-15% embedded in quoted prices
- Implied overround: Prediction markets see YES + NO sum near $1.00. Sports betting typically shows combined implied odds of 110-115%
Reading the Order Book
The PolyGram order book depth visualisation displays all outstanding purchase and sale orders across price tiers. It illuminates:
- Liquidity: Trade volume executable without substantial price slippage
- Support/resistance: Price zones where concentrated orders form barriers against movement
- Market sentiment: Whether aggregate interest tilts toward accumulation or distribution at prevailing rates
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 indicator: A $0.90 contract carries no inherent advantage over a $0.10 contract — only alignment between market valuation and your conviction matters
- Overlooking transaction costs: Thin markets impose spreads of 5-10 cents, potentially eroding your statistical advantage
- Excessive conviction: Before dismissing thousands of participants' collective judgment, rigorously examine your reasoning
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