Understanding Market Odds
If you're new to prediction markets, the percentage numbers can be confusing. Let's break down exactly what they mean and how to interpret them.
The Basics: Price Equals Probability
In prediction markets, the price of a share directly represents the market's estimated probability of an event occurring. If a "Yes" share costs 65¢, the market believes there's a 65% chance the event will happen.
How Payouts Work
Every "Yes" share pays out exactly $1.00 if the event occurs, and $0.00 if it doesn't. This binary structure makes the math simple:
- Buy at 65¢, event happens → You get $1.00 (35¢ profit)
- Buy at 65¢, event doesn't happen → You get $0.00 (65¢ loss)
Quick Math: Calculating Your ROI
To calculate your potential return on investment:
ROI = (1.00 - Purchase Price) / Purchase Price × 100%
Example: Buying at 40¢ gives you (1.00 - 0.40) / 0.40 = 150% ROI if you win.
Reading Implied Probability
The current price tells you what the crowd thinks, but it's not always right. If you believe the true probability is higher than the market price, that's a buying opportunity. If you think it's lower, you might want to sell or buy "No" shares.
Understanding "No" Shares
Some platforms let you buy "No" shares, which pay out if the event doesn't happen. The price of "Yes" and "No" shares should always add up to approximately $1.00 (minus fees). If "Yes" is 70¢, "No" should be around 30¢.
When Odds Change
Prices fluctuate based on new information, trading volume, and market sentiment. A sudden price jump from 40¢ to 70¢ means new information has made the event much more likely. Understanding why prices move helps you make better trading decisions.