In this guide
Key takeaway: Within prediction markets, a share's price functions as the probability estimate. When a YES share trades at $0.65, the collective market assessment is that there exists a 65% likelihood the outcome will occur. Grasping this fundamental relationship between price and probability underpins all successful market participation.
Those transitioning from traditional sports wagering will notice prediction market odds operate on entirely different principles. Fractional odds (5/1), American odds (+400), and decimal odds (5.0) do not feature here. Rather, prediction markets employ a straightforward mechanism: the share price itself embodies the implied probability.
Price = Probability
All prediction market contracts split into two opposing positions: YES and NO. The combined prices consistently approach $1.00 (with a modest spread retained by the market maker). Interpretation follows this pattern:
- YES at $0.72 = Collective market view suggests 72% odds the event materialises
- NO at $0.28 = Collective market view suggests 28% odds the event fails to materialise
- YES at $0.50 = Even odds — the market shows no clear bias either direction
- YES at $0.95 = Extremely probable — merely a 5% chance of non-occurrence
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)
Suppose "Event X" trades at $0.40 (40% implied), yet your assessment places true odds at 55%. Should you acquire YES at $0.40:
- Gain if YES resolves: $1.00 - $0.40 = $0.60
- Loss 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 a trade with favourable long-term prospects. Accumulating hundreds of positive-EV positions generates substantial wealth compounding.
The Spread
The gap separating the strongest bid (maximum purchase price) from the strongest ask (minimum sale price) constitutes the spread. Polymarket's active markets commonly exhibit spreads of 1-3 cents. This mirrors the "vig" found in sports betting yet proves substantially tighter:
- Prediction market spread: 1-3% (equivalent to vig)
- Sports betting vig: 5-15% embedded within quoted odds
- Implied overround: Prediction market YES and NO prices aggregate near $1.00. Sports betting implied probabilities typically aggregate to 110-115%
Reading the Order Book
The PolyGram order book depth display reveals all outstanding purchase and sale orders across price tiers. This information conveys:
- Liquidity: Transaction volume achievable without substantially shifting the price
- Support/resistance: Price zones where substantial orders congregate, forming "barriers" that impede price shifts
- Market sentiment: Whether buying or selling dominates at prevailing valuations
Converting to Traditional Odds
Should conventional odds notation feel more intuitive:
| 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 trade quality: A $0.90 position carries no inherent advantage or disadvantage versus a $0.10 position — only whether the market valuation accurately reflects genuine likelihood matters
- Overlooking the spread: Thin markets frequently display spreads of 5-10 cents, which diminishes your potential profit margin
- Excessive certainty: Believing the market errs requires confidence that you possess superior insight compared to thousands of competing participants
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