How to Read Prediction Market Odds

Prediction markets look intimidating the first time you open one, but the underlying math is simpler than American or decimal sportsbook odds. Every contract on a CFTC-regulated exchange like Kalshi, Robinhood, DraftKings Predictions, FanDuel Predicts or OG.com settles at either $1 (if the event happens) or $0 (if it does not). The price you pay between 1¢ and 99¢ is just the market's estimate of how likely the event is.

Prices Are Probabilities

If a contract trades at 65¢, the market is pricing the event at a 65% probability. Buy it, hold to settlement, and if you are right you receive $1 — a 35¢ profit on a 65¢ stake, or roughly +54%. If you are wrong, you lose your 65¢ stake.

The conversion is one-to-one: - 25¢ → 25% implied probability - 50¢ → 50% (a true coinflip) - 80¢ → 80% (heavy favorite)

There is no overround, no vig built into the line, and no hidden margin. The YES and NO sides of a binary contract should always sum to roughly $1.00. Any meaningful gap is an arbitrage opportunity that disappears within seconds on liquid markets.

Calculating Your Payout

The payout formula is simple:

• Profit if right = (1.00 − price paid) × number of contracts
• Loss if wrong = price paid × number of contracts

Example: you buy 100 contracts of "Lakers win Game 5" at 42¢. Cost = $42. If they win, you receive $100, for a $58 profit (+138%). If they lose, you lose your $42.

Reading Prices as Probabilities

The only conversion you need is the one you already know: price in cents = implied probability in percent.

• A contract at 60¢ = the market says roughly a 60% chance
• A contract at 50¢ = a coin flip
• A contract at 33¢ = roughly a one-in-three chance
• A contract at 17¢ = a long shot, around one in six

Because prediction markets are exchanges rather than houses, prices are set by traders on both sides of the contract and costs are charged as transparent per-trade fees instead of being baked into the price. Comparing the same question across two prediction markets — say Polymarket and Kalshi — is the useful comparison to make, and a few cents of divergence between them is common.

Why Prices Move

Contract prices update continuously as new information arrives. Lineup announcements, weather reports, injury news, polling data and macroeconomic releases all push prices in real time. Traders who can interpret information faster than the median market participant earn the difference between the price they pay and the eventual settlement.

You can also exit a position before settlement by selling your contract back into the order book. If you bought at 42¢ and the price moves to 70¢ before the game, you can lock in a 28¢ profit per contract without waiting for the final whistle.

Practical Reading Tips

1. Always check bid and ask — the spread tells you how much liquidity is in the market.
2. Volume matters more than price width. A 1¢ spread on $5 of volume is meaningless; a 2¢ spread on $50,000 of volume is genuinely tight.
3. Look at the YES + NO sum. On a healthy binary, both sides should add up to about $1.00. A persistent gap signals stale orders or a temporary mispricing.
4. On range markets (e.g., "S&P 500 closes between 5,400 and 5,500"), each bucket is its own contract and the full set of buckets sums to $1.00.

Once these basics click, every other market — sports, politics, crypto, weather, macro — uses the same logic. You are always buying probability for less than $1 and hoping it settles at $1.

Best Platforms Compared

§ References & Sources

1. Commodity Futures Trading Commission (CFTC) (opens in a new tab)— U.S. federal regulator
2. CFTC Designated Contract Markets list (opens in a new tab)— CFTC
3. 26 U.S. Code § 1256 — Section 1256 contracts marked to market (opens in a new tab)— Cornell Law / U.S. Code
4. IRS Form 6781 — Gains and Losses From Section 1256 Contracts (opens in a new tab)— Internal Revenue Service
5. National Council on Problem Gambling — 1-800-GAMBLER (opens in a new tab)— NCPG

Frequently asked questions

How do I convert a prediction market price to a probability?

Divide the price (in cents) by 100. A contract trading at 65¢ implies a 65% probability of the event happening.

How much do I make if I am right?

Profit per contract = $1.00 minus the price you paid. Buying at 30¢ pays 70¢ profit per contract if it settles YES; buying at 80¢ only pays 20¢.

Is there a built-in margin like a sportsbook vig?

No. Prediction markets are peer-to-peer exchanges. The YES and NO sides of a binary contract should sum to roughly $1.00, with the platform charging a small per-trade fee (0–2% on Kalshi).

Can I sell my contract before the event settles?

Yes. As long as there is liquidity in the order book you can exit early at the current market price, locking in profit or cutting losses without waiting for settlement.