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 view assigns a 65% likelihood to that outcome materialising. Grasping this fundamental relationship between price and probability forms the cornerstone of successful market participation.
Those transitioning from traditional sports betting will notice prediction market odds operate on an entirely different basis. Fractional odds (5/1), American odds (+400), and decimal odds (5.0) do not apply here. Instead, prediction markets employ a more transparent mechanism: share prices function as direct probability indicators.
Price = Probability
Each prediction market contract splits into two opposing positions: YES and NO. Their prices consistently total approximately $1.00 (accounting for a modest spread maintained by the market operator). The interpretation works as follows:
- YES at $0.72 = Collective market assessment: 72% likelihood the outcome occurs
- NO at $0.28 = Collective market assessment: 28% likelihood the outcome does not occur
- YES at $0.50 = Maximum uncertainty — market participants hold balanced views
- YES at $0.95 = Overwhelming consensus — merely a 5% possibility of non-occurrence
Calculating Your Expected Value
Expected value (EV) serves as the metric determining long-term profitability of any given trade. The calculation follows this straightforward approach:
EV = (Your probability x Potential profit) - ((1 - Your probability) x Potential loss)
Illustration: Suppose "Event X" trades at $0.40 (40% implied), yet your analysis suggests the genuine probability stands at 55%. Purchasing YES at $0.40 yields:
- Upside if YES prevails: $1.00 - $0.40 = $0.60
- Downside if NO prevails: $0.40
- EV = (0.55 x $0.60) - (0.45 x $0.40) = $0.33 - $0.18 = +$0.15 per share
Positive EV signals that the trade generates returns in expectation. Across numerous trades, positive EV accumulates into tangible wealth creation.
The Spread
The gap separating the highest purchase bid from the lowest sale offer constitutes the spread. Polymarket's most active contracts typically exhibit spreads ranging from 1 to 3 cents. This parallels the "vig" concept in sports betting, though substantially tighter:
- Prediction market spread: 1-3% (functionally equivalent to vig)
- Sports betting vig: 5-15% embedded within displayed odds
- Implied overround: Prediction markets see YES + NO sum near $1.00. Sports betting typically produces implied probability totals of 110-115%
Reading the Order Book
The PolyGram order book depth display reveals all outstanding bids and asks stacked at each price tier. This information communicates:
- Liquidity: The volume available for purchase or sale without substantially shifting the price
- Support/resistance: Price zones containing concentrated orders that form barriers against movement
- Market sentiment: Whether aggregate interest leans toward accumulation or distribution at present 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
- Conflating price with trade quality: A $0.90 position carries no inherent disadvantage versus a $0.10 position — only whether the quoted price accurately reflects genuine probability matters
- Neglecting the spread: Thinly traded markets often display spreads of 5-10 cents, which can eliminate your anticipated profit margin
- Excessive conviction: Before assuming the market has mispriced an outcome, consider why thousands of participants might hold the opposite view
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