How Prediction Market Probabilities Work

The single most useful idea in prediction markets is that price equals probability. A contract that pays $1 changes hands at $0.18, so the market implies an 18% chance. That is the whole translation. Everything else is knowing when the translation is reliable and when it is not.

Converting between formats

• Price to probability: multiply by 100. $0.35 = 35%.
• Probability to decimal odds: divide 1 by the probability. 35% = 2.86.
• Decimal odds to probability: divide 1 by the odds. 4.0 = 25%.
• Payout: buying at $0.35 returns $1, so your profit is $0.65 per contract on a $0.35 risk.

Why the numbers should add up to 100

Across all outcomes of the same event, the prices should total about $1. A little over is normal — that excess is the spread and the makers' edge, the equivalent of a bookmaker's overround. A lot over means the market is illiquid or stale. Occasionally the total is under $1, which is a genuine arbitrage and usually disappears within seconds.

Reading a change in price

A move from 20% to 30% is a 50% increase in the implied chance, not a "10 point" event. Percentage-point moves at the extremes are far more meaningful than moves in the middle: going from 2% to 6% means the market has tripled its assessment of an unlikely event, which is usually news.

Calibration, not certainty

A well-calibrated market is right about 70% of the time when it says 70%. That means 30% shots come in regularly — a favourite losing is not evidence that the market was wrong. Judge prices over hundreds of events, never over one.

Where the reading breaks down

• Thin markets. A price set by a $50 trade tells you about one trader, not the crowd.
• Longshot bias. Very low probabilities often trade a little too high because a cheap lottery ticket is attractive.
• Time value and capital cost. On a market resolving in two years, money is tied up, so prices sit slightly below the true probability.
• Restricted participation. If informed traders in a country are geoblocked, the remaining crowd can be skewed.
• Ambiguous wording. Some of the price is the chance the rules resolve a certain way, not the chance the event happens.

Comparing across venues

The same question can trade at different prices on two platforms because of fees, funding currency, and who can access each venue. Differences of a point or two are noise. Persistent large gaps usually mean the contract wording differs — read both before assuming somebody is wrong.

Every percentage on this site is taken from the source platform named on the card, at the time shown. We never publish a probability of our own.