How do I read a prediction market price as a probability?

For a standard binary contract, the price roughly equals the implied probability. A $0.73 price suggests about a 73% chance, assuming normal liquidity and rules.

Detailed Explanation

Binary contract mapping:

• Fair price ≈ probability of Yes
• "Yes" share pays $1 if Yes, $0 if No

Implied probability:

• Probability ≈ Price / $1 payout

Why it's approximate:

• Fees, spreads, and risk preferences can push price away from "true" probability.

Why it matters:

• It's a fast way to compare crowd belief vs your model.

Common Scenarios

• Building a dashboard of implied probabilities across topics
• Monitoring "surprise" vs consensus into an event
• Tracking how probability moves after new information
• Comparing market odds to your internal estimate

Exceptions & Edge Cases

• If market is extremely illiquid, then last trade price can be meaningless.
• If the contract can resolve "ambiguous," "void," or "other," then simple mapping breaks.
• If fees are large or asymmetric, then implied probability from raw price can be biased.

Practical Examples

Market: "Company X launches product by June 30"

• Your estimate 10% → you might sell/short "Yes" (if possible) or buy "No" (if offered)
• Implied probability ~25%
• "Yes" price $0.25

Actionable Takeaways

• ✅ Treat low-volume "last price" with skepticism
• ✅ Adjust expectations for fees/spread
• ✅ Use mid-price (between bid/ask) when possible
• ✅ Verify it's a true binary $1/$0 payoff