Prediction Market Returns Calculator: The Math Behind Every Trade

Every prediction market trade fundamentally comes down to a straightforward expected value calculation. Mastering this mathematics ensures you approach each position with clarity — you'll understand precisely what success rate you require, at what odds, and what probability threshold separates profit from loss.

Basic Return Calculation

When you acquire a YES share at price P:

• Win return: (1 - P) / P × 100% = your percentage gain should YES resolve affirmatively
• Loss: 100% of your initial capital if NO resolves instead
• Break-even probability: P (the quoted market price represents your break-even threshold)

Worked examples:

• YES at $0.20: win = +400%, break-even = 20%
• YES at $0.50: win = +100%, break-even = 50%
• YES at $0.75: win = +33%, break-even = 75%
• YES at $0.90: win = +11%, break-even = 90%

Expected Value Formula

EV = (Your probability × Win amount) - ((1 - Your probability) × Stake)

Consider a $100 outlay on YES priced at $0.40, assuming your personal probability estimate stands at 55%:

• Win amount if YES: $150 (you collect $250 total, having wagered $100)
• Loss if NO: -$100
• EV = (0.55 × $150) - (0.45 × $100) = $82.50 - $45 = +$37.50 expected value

How to Use This in Practice

1. Establish your probability estimate BEFORE examining the market price
2. Determine the break-even probability (which equals the market price)
3. If your estimate exceeds break-even by more than the bid-ask spread: compelling buy opportunity
4. If your estimate falls below break-even: evaluate NO shares as an alternative
5. If your estimate aligns with break-even: pass — the edge is insufficient

Position Size Calculator

Applying half-Kelly: f = 0.5 × (bp - q) / b

• For a scenario where your p = 0.65, market = 0.40: b = 1.5, q = 0.35
• Full Kelly: (1.5 × 0.65 - 0.35) / 1.5 = 0.42 (42% of bankroll)
• Half Kelly: 21% of bankroll — nevertheless enforce a 5% maximum per individual position

FAQ

Is there an automated calculator for prediction market trades?

PolyGram displays projected execution price, quantity of shares acquired, and maximum profit potential directly within the trade interface prior to final submission. Performing your own EV analysis beforehand remains a prudent practice for thorough due diligence.

How do spreads affect the return calculation?

Modify your effective purchase price upward by incorporating half the spread width. Should YES display a bid of 0.38 and ask of 0.42, your realistic entry point approximates 0.42 rather than 0.40.