Key takeaway: Within prediction markets, a share's price functions as the probability itself. When a YES share trades at $0.65, this signals that market participants assess a 65% likelihood of the 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. Fractional odds (5/1), American odds (+400), and decimal odds (5.0) do not apply here. Instead, prediction markets employ a more straightforward approach: share prices function as direct representations of implied probability.
Price = Probability
All prediction market contracts split into two opposing positions: YES and NO. These prices typically aggregate to roughly $1.00 (with a modest spread retained by the market maker). The interpretation follows this pattern:
- YES at $0.72 = The market estimates a 72% likelihood the event transpires
- NO at $0.28 = The market estimates a 28% likelihood the event fails to occur
- YES at $0.50 = Equivalent to a coin toss — the market lacks a clear bias
- YES at $0.95 = Approaching certainty — merely a 5% possibility of non-occurrence
Calculating Your Expected Value
Whether a trade generates profit over time hinges on expected value (EV). The calculation remains straightforward:
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 assessment puts the genuine probability at 55%. Should you acquire 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 signals a profitable trade in expectation. Across numerous trades, positive EV accumulates into tangible gains.
The Spread
The gap separating the highest purchase bid from the lowest sale ask constitutes the spread. Polymarket's active markets typically exhibit spreads ranging from 1-3 cents. This resembles the "vig" in sports betting yet remains substantially tighter:
- Prediction market spread: 1-3% (functionally equivalent to vig)
- Sports betting vig: 5-15% embedded within the odds
- Implied overround: Prediction markets see YES + NO prices converge near $1.00. Sports betting typically shows implied probabilities totalling 110-115%
Reading the Order Book
The PolyGram order book depth visualisation displays all outstanding purchase and sale orders across price tiers. This reveals:
- Liquidity: The volume available to transact without substantially shifting the market price
- Support/resistance: Price points hosting concentrated orders, forming "walls" that hinder price shifts
- Market sentiment: Whether demand outweighs supply or vice versa at prevailing prices
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 an indicator of bet quality: A $0.90 contract carries no inherent advantage or disadvantage versus a $0.10 contract — alignment between price and actual probability determines value
- Overlooking the spread: In thinly-traded markets, spreads can widen to 5-10 cents, substantially eroding your profit margin
- Excessive confidence: Before dismissing the market's consensus, consider why thousands of participants may hold a different view than yours
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