Skip to content
Monte

What does a 30¢ price mean?

A prediction market price is the crowd's chance. Compare it with yours, after fees.

Try it with your own numbers

30% is the crowd's chance. At your 40%, Yes is worth +9¢ a contract.

Will it rain on the day of the parade? Made-up questions and prices, not live markets.

Each contract pays $1 (100¢) if the answer is yes, and nothing if not.

The crowd says
30%
a 30¢ price is a 30% chance
You need
31%
to break even on Yes, fee included
EV per Yes
+9¢
costs 31¢ with the fee
EV per No
−11¢
costs 71¢ with the fee

At your 40%, Yes is worth +9¢ per contract on average, or +$29.03 on every $100 spent. That only holds if your chance is closer to the truth than the crowd's.

How this works, step by step

  1. A contract pays $1 if it happens.

    A prediction market asks a yes or no question. A Yes contract pays $1 if the answer is yes and nothing if not. People buy and sell these all day, and the price moves.

  2. The price is the crowd's chance.

    If a Yes trades at 30¢, the people trading it, together, put the chance near 30%. If they thought it was likelier, someone would pay more. It is the crowd’s estimate, not a fact. Busy markets on well-known questions are often well calibrated. Small markets, long shots and questions people feel strongly about can be off.

    implied chance = price ÷ 100¢ · 30¢ → 30%

  3. Compare with your own chance.

    If you think the chance is 40% and Yes costs 30¢, then on average each contract pays 40¢ and costs 30¢. That is a 10¢ edge. If you are wrong about your 40%, the edge is not there.

    EV per Yes = your chance × 100¢ − price − fee · EV per No = (1 − your chance) × 100¢ − (100¢ − price) − fee

  4. Count the costs.

    Fees come off every contract, so you need a bigger edge than it looks. The price to buy is usually a little above the price to sell, called the spread. Your money is also tied up until the question is settled, which can take months. A 2¢ edge on a question that settles in a year is a small return.

    break-even chance = (price + fee) ÷ 100¢

For learning, not financial, medical or betting advice.