The Basics: Price = Probability
In prediction markets, the price of a share represents the crowd's estimated probability of that outcome occurring.
Formula: Share Price = Probability × $1.00
Examples
- Yes shares at $0.70 = 70% probability
- No shares at $0.30 = 30% probability
- Always: Yes price + No price ≈ $1.00
Reading Market Depth
The order book shows buy and sell orders:
Bid-Ask Spread
Buy Orders (Bids): Sell Orders (Asks):
$0.68 - 500 shares $0.72 - 300 shares
$0.67 - 1000 shares $0.73 - 800 shares
$0.66 - 2000 shares $0.74 - 1500 shares
Spread = $0.72 - $0.68 = $0.04 (4 cents)
Narrow spreads = high liquidity, easier to trade
Wide spreads = low liquidity, harder to enter/exit
Implied Probability vs True Probability
Market prices show implied probability, not necessarily true probability.
Example: Election Market
Candidate A: $0.55 (55% implied probability)
Your analysis says: Based on polls, demographics, and historical data, you believe the true probability is 65%.
Opportunity: Buy at $0.55, potential value if you're correct!
Common Odds Formats Comparison
| Polymarket | Traditional Odds | Probability |
|---|---|---|
| $0.50 | Even (1/1) | 50% |
| $0.67 | 2/1 | 67% |
| $0.75 | 3/1 | 75% |
| $0.90 | 9/1 | 90% |
Calculating Your Edge
Edge = True Probability - Implied Probability
Example
- Market Price: $0.60 (60% implied)
- Your Estimate: 70% true probability
- Edge: 70% - 60% = 10%
Positive edge = potentially profitable trade!
Why Odds Change
Prices move based on:
- New Information: News breaks, odds shift
- Supply/Demand: More buyers = price up
- Time Decay: As events near, uncertainty decreases
- Whale Trades: Large orders move markets
- Arbitrage: Traders align prices across markets
Reading Price Charts
Polymarket shows price history:
- Uptrend: Increasing probability
- Downtrend: Decreasing probability
- Volatility: Uncertainty or new info
- Flat: Consensus stable
Common Misunderstandings
Wrong: "60% odds means I'll win 60% of the time"
Right: "60% odds means if this event happened 100 times, it would occur 60 times"
Wrong: "The market is always right"
Right: "The market represents the consensus, but consensus can be wrong"
Next: Learn how to place your first trade with proper position sizing.