Edge

Definition

Edge is the gap between your predicted probability and the implied probability from the market price.

Why it matters

Edge is the simplest way to describe disagreement with the market. But edge alone is not enough because costs matter.

Costs and break even

• Fees raise your required edge.

• Bid ask spread and slippage reduce realized results.

• Use break even probability as a cost adjusted threshold.

Common pitfalls

Ignoring execution: Using mid when you actually trade at ask or bid overstates edge.

Small edge, large noise: When spreads are wide, small edges are unreliable.