How do I calculate expected value (EV) for a trade in a prediction market?

EV compares what you expect to win on average vs what you pay. For a $1 "Yes" contract: EV = (your probability × $1) − price − fees.

Detailed Explanation

The EV formula: For a binary contract paying $1 on "Yes": EV = p − price − fees, where p is your estimated probability of "Yes."
What EV tells you: A positive EV means you expect to profit on average over many similar trades. Negative EV means the opposite.
All-in cost: "Price" should include any spread impact (slippage), and "fees" should include both trading fees and any withdrawal or settlement costs.
Uncertainty matters: If your p estimate is uncertain, your EV estimate is also uncertain. Consider the range of plausible p values, not just your point estimate.

You're deciding whether a mispricing is worth trading after fees
You're comparing two markets on similar events to find the better opportunity
You're sizing a position—higher EV per share justifies larger sizing (within risk limits)
You're stress-testing: "If I'm wrong by 5–10 points, is EV still positive?"

If fees exceed your edge, then EV is negative even if the market is "wrong."
If you can't exit easily, then factor in the cost of being locked in until settlement.
If the payout isn't exactly $1 (e.g., range contracts, partial payouts), then adjust the formula accordingly.

Step-by-step EV calculation:

Your estimate: You believe the probability of "Yes" is p = 0.58 (58%).
Market price: "Yes" shares are trading at $0.52.
Fees: Total trading + settlement fees are $0.01 per share.
EV calculation: EV = 0.58 − 0.52 − 0.01 = $0.05 (5 cents per share).
Interpretation: On average, you expect to profit 5 cents per share—a positive EV trade.

✅ Write down your p (and why)—be explicit about your probability estimate and its basis
✅ Subtract realistic fees + spread impact—don't ignore execution costs
✅ Stress-test p: what if you're wrong by 5–10 points? Is EV still positive?
✅ Avoid trades where EV is smaller than execution costs—small edges get eaten by fees