Expected value, or EV, is the average result you would get from a trade if you could make it over and over again. It is the concept that turns prediction markets from a guessing game into a discipline: instead of asking “will this happen?”, EV asks “is this price worth taking, given how likely it is?” Every consistently profitable approach, from finding value to arbitrage, is ultimately a way of seeking positive EV.
What expected value is
EV is a probability-weighted average of every outcome. Each possible result is multiplied by its chance of happening, and the pieces are added together. A trade has positive EV when the probability-weighted winnings outweigh the probability-weighted losses — and negative EV when they do not. A fair coin flip paying even money has an EV of zero; tilt either the odds or the price in your favour and the EV moves with it. The whole game is finding prices whose EV is positive from your point of view.
Calculating EV
For a single event contract, the calculation is short. Buying at a price p (in dollars) that you believe has a true probability q of settling at $1:
EV = (q × (1 − p)) − ((1 − q) × p)
The first term is your probability of winning times the profit you make; the second is your probability of losing times the stake you forfeit. If the result is positive, the contract is priced below what you think it is worth. The key input is your estimate q — EV is only as good as the probability you bring to it, which is why honest, well-reasoned estimates matter more than any formula. The EV calculator runs these numbers for you.
A worked example
Suppose a contract trades at 40¢ and, after your own research, you judge the event 55% likely. Winning returns 60¢ of profit; losing costs your 40¢. The EV per contract is (0.55 × 0.60) − (0.45 × 0.40) = 0.33 − 0.18 = +0.15, or fifteen cents of expected profit on every 40¢ staked. That is a strongly positive-EV trade — provided your 55% estimate is sound. Flip your estimate to 35% and the same 40¢ price becomes negative-EV, which is exactly why the discipline is in the probability, not the price.
Why EV, not outcomes
A positive-EV trade can still lose, and a negative-EV trade can still win — over a small number of trades, luck dominates. Judging your decisions by whether a single contract paid off is the classic mistake; a market priced at 30% is supposed to lose about 70% of the time. What you control is taking good prices repeatedly, and letting the maths play out across many trades. This is also why bankroll management matters: positive EV only compounds if variance does not knock you out first.
EV and your edge
Your edge is simply persistent positive EV — a real, repeatable gap between your probability estimates and the market’s prices. It comes from knowing a category better than the average trader, spotting a mispriced market before others, or acting on information faster. No edge means EV hovers around zero minus fees, and trading becomes a slow way to pay the platform. A genuine edge means positive EV, and positive EV, given time and discipline, is what a profitable trader is really chasing. Reading a price as an implied probability is the first step to spotting where that gap lies.
Frequently asked questions
What is expected value in prediction markets?
Expected value (EV) is the average outcome of a trade if it were repeated many times: each result weighted by its probability, then summed. A trade has positive EV when the probability-weighted winnings exceed the probability-weighted losses, meaning the price is below what you think the outcome is worth.
How do you calculate EV on a contract?
For a contract bought at price p (in dollars) with your estimated win probability q: EV = (q × (1 − p)) − ((1 − q) × p). If it is positive, the contract is priced below your fair value. At 40¢ with a 55% estimate, EV is +15¢ per contract.
Can a positive-EV trade still lose?
Yes. EV is a long-run average, so any single positive-EV trade can lose and any negative-EV trade can win — variance dominates over a few trades. The point is to take good prices consistently and let the maths play out across many trades, which is why bankroll management matters.