If you understand one thing about prediction markets, make it this: the price of a contract is the market’s estimate of how likely an event is. A contract trading at 62¢ is the market saying the outcome is roughly 62% probable. This guide explains why that is true, and why it is the foundation everything else builds on.
The $1 / $0 payoff
Every prediction-market contract has the same simple structure: it pays $1 if the event happens and $0 if it does not. That is the whole instrument. Because the payoff is exactly one dollar or nothing, the price you should rationally pay is governed entirely by how likely the dollar is to arrive.
The fair price is the probability
The expected value of holding a contract is the payoff times its probability: ($1 × probability) + ($0 × (1 − probability)), which simplifies to just the probability, in dollars. So if an outcome is genuinely 62% likely, the fair value of the contract is $0.62 — 62¢. Pay less than that and you expect to profit over time; pay more and you expect to lose. The price the market settles on therefore is its collective estimate of the probability.
Fair price = probability of the event. A contract at 30¢ implies a 30% chance; one at 85¢ implies 85%.
Why the price self-corrects
What stops a price drifting away from the true probability? Traders. If a contract is trading at 50¢ but the crowd comes to believe the real chance is 70%, buyers will pile in — they are getting 70¢ of expected value for 50¢ — and their buying pushes the price up toward 70¢. The same works in reverse. This constant tug-of-war is what keeps the price anchored to the market’s best estimate, and it is why deep, liquid markets are more reliable than thin ones.
Why it is approximate, not exact
In practice a few things make the price an approximation of the probability rather than a perfect reading: the spread between buy and sell prices, trading fees, the time value of money tied up until resolution, and any risk premium traders demand. These are usually small on liquid markets, but they are why you should treat a price as “about 62%” rather than exactly so.
To convert any price into a clean percentage and other odds formats, use the odds converter; to see how a price drives your payoff, the profit calculator; and to judge a trade against your own estimate, the EV calculator.
Frequently asked questions
What does a prediction market price mean?
It is the market's estimate of the probability that an event happens. Because a contract pays $1 if the event occurs and $0 if it does not, its fair price equals that probability — a contract at 62 cents implies roughly a 62% chance.
How do I convert a price to a probability?
For a contract priced in cents, the price is the implied probability directly: 62 cents equals about 62%. Our odds converter does this and also translates to decimal, fractional and American odds.
Why isn't the price exactly the probability?
Fees, the bid-ask spread, the time your money is locked up, and any risk premium all nudge the price slightly away from the pure probability. On liquid markets these effects are small, so the price is a close approximation.