Price = probability: how to read a market

In a prediction market, the price and the probability are the same number. If “Yes” is at 70%, the market gives it a 70% chance. This guide explains how to read everything else you see on screen.

The price is a probability

Each position pays the full amount if its answer happens, and zero if it doesn’t. If lots of people think something has a 70% chance, nobody wants to pay more than 70% for “Yes” or sell it for less, so the price stays close to that.

That’s why the useful question isn’t “will it happen?” but “is the real probability higher or lower than the price?” If you think it’s higher, the price looks cheap to you; if you think it’s lower, it looks expensive.

What it pays if you’re right

The payout is the full amount divided by the price. Bomba shows it with an ×:

A low price pays more because it’s less likely. If you buy “Yes” at 25% with $100 and it happens, you get $400; if it doesn’t, you lose the $100. Before you confirm, the app tells you how much you pay and how much you’d get back.

“Yes” and “No” add up to 100

In a yes-or-no question, if “Yes” is at 70%, “No” is close to 30%. In a question with several answers, like the Fed decision (no change, hike, cut), the answers add up to about 100%. If they add up to a little more, the difference is the gap between buy and sell prices.

Buy price, sell price and the spread

There are two prices at any moment: the lowest anyone will sell at (what you pay if you buy) and the highest anyone will buy at (what you get if you sell). The probability you see is the midpoint. If you can buy at 71% and sell at 69%, the probability is 70% and the spread is 2 points. A tight spread usually means an active market.

Volume and liquidity

• Volume: how much money has changed hands in that market. More volume, more people behind the price.
• Liquidity: how much is waiting to buy and sell near the price. With more liquidity, your purchase moves the price less.

A 60% with millions in volume says more than a 60% with a few thousand.

How to read the moves

Changes are measured in points: going from 40% to 46% is 6 points (6 pts). Big jumps almost always follow news: an inflation report, a debate, a company announcement. On the 24-hour chart you can see what time it moved, and you’ll almost always find the news that explains it.

Common mistakes

• Reading 80% as “a sure thing”. It happens four times out of five, not always.
• Not reading the rules: the closing date and the source decide the answer.
• Treating a low-volume market as if it were as reliable as a big one.
• Forgetting that the price already includes what everyone knows. For a position to make sense, you have to see something the price doesn’t reflect yet.

Want to see a live example? Look at what the market expects from the Fed.