SVPulse · Prediction markets

Prediction market odds as probabilities

Also called: implied probability, event odds, market-implied probability

A prediction market price can be read as an implied probability, but spreads, fees, overround and longshot bias mean it needs adjusting first.

Definition

Prediction market odds are the prices of event contracts, expressed either directly as prices between 0 and 1 (or 0 and 100 cents) or in betting-odds formats. Read as probabilities, they are the market-implied chance of each outcome.

Converting them properly means choosing a price (bid, ask or mid), removing any overround across outcomes, and remembering what the price does and does not include.

Intuition

Under simple assumptions (risk-neutral traders, no fees, no constraints) the price of a contract paying 1 equals the expected payoff, which is the probability of the event. Real markets add frictions, so the price is better thought of as a probability plus distortions that you can partly estimate.

Like option-implied distributions, these are market prices of risk, not neutral forecasts. They are informative because traders have money at stake, and biased in known ways for the same reason.

How it's calculated

Binary contract price: p = price / payout, using the mid of bid and ask.
Decimal odds d: p = 1 / d. Fractional odds a/b: p = b / (a + b). American odds: for +A, p = 100 / (A + 100); for −A, p = A / (A + 100).
Overround: for mutually exclusive outcomes, Σ p_i − 1. A simple normalization is p_i* = p_i / Σ p_j; more refined methods spread the margin unevenly.

For a contract that resolves far in the future, the opportunity cost of locked capital pushes prices for unlikely events up and for likely events down, compared with true probabilities.

Example: if three mutually exclusive outcomes trade at 0.50, 0.35 and 0.20, they sum to 1.05; dividing each by 1.05 gives about 0.476, 0.333 and 0.190.

How to read it

Mid prices on liquid contracts are reasonable probability estimates; prices very close to 0 or 1 are the least reliable because costs and capital lock-up dominate there. The favorite–longshot bias, well documented in betting markets, means low-probability outcomes tend to be overpriced.

Compare the implied probability with other sources, such as interest-rate futures for policy decisions, before treating the gap as information.

Common mistakes

Using the last trade instead of the mid, especially in thin markets.
Forgetting to remove overround, so probabilities across outcomes sum to more than 1.
Reading a 3% contract as a precise 3% chance; longshots are often overpriced.
Comparing contracts with different resolution criteria as if they priced the same event.

In Saqrid

SVPulse's Probability Bridge lists odds from prediction markets on macro and geopolitical events.

Its Whale Tracker shows large recent prediction-market positions with side, odds and size.

Open SVPulse.

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