Implied Probability

Definition

Implied probability is the probability you get when you translate a market price into probability on the same price scale. On a 0 to 100 scale, a price of 63.5 implies 63.5 percent.

How to compute it

• If price is 0 to 100, implied probability percent equals price.

• If price is 0 to 1, implied probability decimal equals price.

• If you have bid and ask, you can reference mid price or use ask or bid for a conservative comparison.

Why it matters

Implied probability is the market signal you compare against your predicted probability. But it can be distorted in thin markets due to slippage and wide spreads.

Common pitfalls

Treating implied probability as truth: Price reflects trading, not certainty.

Using last trade only: A single print can be misleading without bid and ask context.