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 a 65% likelihood of that outcome occurring. Grasping this fundamental relationship between price and probability forms the bedrock of successful trading strategy.
Coming from traditional sports wagering, prediction market odds operate on an entirely different framework. Fractional odds (5/1), American odds (+400), and decimal odds (5.0) do not appear here. Instead, prediction markets employ a straightforward mechanism: the share price itself embodies the implied probability.
Price = Probability
Each prediction market contract splits into two opposing positions: YES and NO. Their prices converge to roughly $1.00 total (accounting for a modest spread retained by the market maker). Deciphering them works like this:
- YES at $0.72 = Market consensus: 72% odds the outcome materialises
- NO at $0.28 = Market consensus: 28% odds the outcome does not materialise
- YES at $0.50 = Even odds — the market holds neutral stance
- YES at $0.95 = Overwhelming likelihood — merely 5% probability of non-occurrence
Calculating Your Expected Value
Expected value (EV) governs whether a position generates profit across repeated trades. The calculation follows this pattern:
EV = (Your probability x Potential profit) - ((1 - Your probability) x Potential loss)
Scenario: A market quotes "Event X" at $0.40 (40% implied), yet your analysis suggests true odds are 55%. Purchasing YES at $0.40 yields:
- Upside if YES wins: $1.00 - $0.40 = $0.60
- Downside if NO wins: $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 in expectation. Across numerous transactions, this advantage compounds into tangible wealth accumulation.
The Spread
The gap separating the highest purchase offer (bid) from the lowest sale offer (ask) constitutes the spread. On Polymarket, active markets typically feature spreads ranging 1-3 cents. This mirrors the "vig" 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 + NO prices approximate $1.00. Sports betting implied probabilities frequently total 110-115%
Reading the Order Book
The PolyGram order book depth chart displays all unexecuted buy and sell orders across price tiers. It reveals:
- Liquidity: Transaction volume available at each price without substantial slippage
- Support/resistance: Price zones where substantial orders accumulate, forming barriers to movement
- Market sentiment: Whether demand or supply dominates at prevailing valuations
Converting to Traditional Odds
For those preferring 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 contract carries no inherent advantage over a $0.10 contract — only whether the quoted price aligns with genuine probability matters
- Overlooking the spread: Thinner markets impose spreads of 5-10 cents, potentially eroding your mathematical advantage
- Excessive conviction: Before betting against thousands of participants, ensure you can articulate precisely where their collective judgment falters
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