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 reflects a 65% likelihood of that outcome occurring. Grasping this fundamental relationship between price and probability forms the bedrock of successful trading strategy.
If your background lies in sports wagering, prediction market odds operate on entirely different mechanics. You won't encounter fractional odds (5/1), American odds (+400), or decimal odds (5.0) here. Instead, prediction markets employ a more straightforward approach: share prices serve as direct proxies for implied probability.
Price = Probability
Each prediction market contract splits into two opposing positions: YES and NO. The combined prices consistently approximate $1.00 (accounting for a modest spread retained by the market maker). Decoding them works like this:
- YES at $0.72 = The market assigns a 72% likelihood to the event materialising
- NO at $0.28 = The market assigns a 28% likelihood the event fails to occur
- YES at $0.50 = Perfect equilibrium — neither outcome favoured by market participants
- YES at $0.95 = Overwhelming consensus — merely a 5% probability of non-occurrence
Calculating Your Expected Value
Expected value (EV) serves as the metric determining whether a position generates profit over repeated trades. The calculation follows this straightforward formula:
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:
- 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 an expectation-based profit edge. Across numerous transactions, this advantage compounds into tangible wealth accumulation.
The Spread
The gap separating the highest purchase bid from the lowest sale ask constitutes the spread. Polymarket's actively traded contracts typically exhibit spreads between 1-3 cents. This mirrors the "vig" concept familiar to sports bettors, though substantially tighter:
- Prediction market spread: 1-3% (functionally equivalent to vig)
- Sports betting vig: 5-15% embedded within the quoted odds
- Implied overround: Prediction market YES + NO prices cluster near $1.00. Sports betting implied probabilities frequently aggregate to 110-115%
Reading the Order Book
The PolyGram order book depth display reveals all queued buy and sell orders across price tiers. This intelligence communicates:
- Liquidity: The volume available for execution without substantial price slippage
- Support/resistance: Price zones where concentrated orders form barriers against directional movement
- Market sentiment: Whether aggregate demand or supply dominates at prevailing price levels
Converting to Traditional Odds
Should conventional odds notation feel more intuitive to you:
| 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 superiority over a $0.10 contract — only whether the quoted price aligns with genuine probability matters
- Disregarding the spread: Thinly traded markets can widen spreads to 5-10 cents, substantially eroding your expected advantage
- Excessive conviction: Before wagering against consensus, consider whether your thesis justifies disagreement with thousands of competing traders
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