Market Price to Implied Probability: Avoiding 100x Errors
What market price means
Market price is the price at which contracts trade. In many prediction markets, a YES contract pays 1 unit (or 100 cents) if the outcome happens and 0 if it does not.
Under that common structure, price is often interpreted as an implied probability. This is a useful shortcut, but it is still an interpretation. Price can be affected by liquidity, positioning, and execution costs.
Step 1: Identify the price scale
The first step is always price scale. Platforms commonly use one of these:
• 0 to 1 scale: price is already a probability-like number (0.53 means 53 percent)
• 0 to 100 scale: price is in cents (53 means 53 cents, often read as 53 percent)
This is the same concept as contract price scale (0-100 vs 0-1).
Step 2: Convert price to implied probability
If the scale is 0 to 1
• implied probability = price
Example: price 0.57 implies probability 0.57 (57 percent).
If the scale is 0 to 100
• implied probability = price divided by 100
Example: price 57 implies probability 0.57 (57 percent).
The 100x errors that cause fake edge
These are the mistakes that create false confidence and bad trades:
1) Treating 57 as 0.57 without checking the scale
If the platform is 0 to 100 and you treat 57 as 0.57, you are correct. If the platform is 0 to 1 and you treat 0.57 as 57, you are 100x wrong.
2) Mixing percent and probability
57 percent equals probability 0.57. It does not equal 57.
3) Mixing cents and dollars
On a cents scale, 57 means 57 cents. On a dollar scale, 0.57 means 57 cents. Always normalize into one representation first.
4) Using last trade instead of quotes
Last traded price can be stale. Use bid, ask, and mid price to understand the current market. The bid ask spread is part of your cost.
Sanity checks that take 10 seconds
• Does the price live on 0 to 1 or 0 to 100?
• Does YES pay 1 unit (or 100 cents) at settlement?
• Is the value you are reading a last trade, a bid, or an ask?
• If you enter now, are you crossing the spread?
From implied probability to a decision
Once you have implied probability, the next step is comparison:
• Build your predicted probability.
• Convert market price to implied probability.
• Compute edge as the difference.
• Require that edge clears costs like fees, trading fee, and spread costs.
If you do not clear costs, the trade can be negative even if your directional view is correct.
Worked examples
Example A: 0 to 100 scale
Market shows 62 (cents). Implied probability = 62 divided by 100 = 0.62.
If your predicted probability is 0.68, your raw edge is 0.06. Whether that is tradable depends on fees and execution.
Example B: 0 to 1 scale
Market shows 0.62. Implied probability = 0.62.
If you mistakenly treat 0.62 as 62 and then divide again by 100, you will create a fake implied probability of 0.0062. That is a classic 100x error.
Common mistakes
Assuming price equals truth: price is a market outcome, not a guarantee. Liquidity and flow matter.
Ignoring quotes: a tight looking last trade does not mean you can execute at that level.
Skipping the scale check: the scale error is the fastest way to lose trust in your own numbers.
Takeaway
Implied probability is a conversion, not a belief. Confirm the price scale, convert cleanly, use bid and ask not just last trade, and only then compare your predicted probability to the market. Most bad trades start with a unit mistake, not a forecasting mistake.
Related
• Predicted Probability: How to Build a Forecast You Can Trust
• Fair Price and Edge: Turning Beliefs into Trade Thresholds