🧑&zwj;🔬 How are prediction market prices calculated?

<p>As prediction markets are peer-to-peer platforms, the <a href="https://ballislife.com/prediction-markets/guide/the-hidden-costs-of-event-trading/" data-view="1">costs of event trading</a> are purely based on how users are currently trading. If an option becomes more popular with users, the market price will rise, and vice versa.</p>

Prediction Markets / Prediction Markets To Trade On Future Events Ranked & Reviewed / How Do Prediction Markets Work? (A Complete Guide for 2026) / Step-by-Step Guide On How to Read Market Prices in 2026

Step-by-Step Guide On How to Read Market Prices in 2026

Sara Jane Gamelli

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Last Updated on Jul 29, 2026

Fact checked by: Matt Moreno

If you’re new to the world of prediction markets, there is an awful lot to get to grips with. One of the biggest areas you need to understand is how to read market prices as probabilities.

In this short guide, we will tackle that vital issue by talking you through a real life example of a prediction market and explaining how to read the prices attached to each option. Plus, to help you develop your understanding of how prediction markets work, we’ve got some key facts you need to know before you get started.

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Table of Contents

A brief guide to prediction markets: Seven key facts you need to know
How are prediction market prices determined?
How to read market prices as probabilities?
Verdict - Give prediction markets a try
How to read market prices: FAQs

A brief guide to prediction markets: Seven key facts you need to know

If you’ve never used prediction markets, you’ve probably got a lot of important questions that need answering, such as ‘what is a prediction market?’ and ‘how do you use them?’. So to help you out, here are seven basic facts that will help you get a basic understanding of how it all goes down:

Prediction markets cover sporting events, as well as other real world topics, such as politics, entertainment and economics.
To use the markets, you need to trade ‘Yes’ or ‘No’ event contracts (which work similarly to shares) that predict the outcome of the events.
To receive a payout, you need to successfully predict the outcome of the event.
Each market option is priced based on the likelihood of the event occurring.
As prices are displayed as a fraction of $1.
The closer the price is to $1, the greater the likelihood of the event occurring.
Prediction markets operate under different laws to stand sportsbooks. However, the answer to the question ‘Are prediction markets legal?’ is a resounding ‘yes’.

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How are prediction market prices determined?

The way market prices are determined is a key difference between online sportsbooks and prediction markets. In the case of the former, the prices are set by the sportsbook and take into account a small house edge, as well as the probability of the outcome occurring.

On the other hand, prediction markets, including the ones featured in our Kalshi vs Polymarket article, are peer-to-peer platforms. This means that the prices are dictated by the amount of activity from the users, so they will vary from site to site. If more people back a certain outcome, the price of that outcome will rise accordingly, and vice versa. This also means that prices adjust in real-time, based on the latest user activity. As such, the market price can change whilst the event is taking place, giving users the option of trading out of their predictions to receive a payout based on the current market price.

How to read market prices as probabilities?

Of course, if you want to find value in the prediction markets, you need to have a comprehensive knowledge of how each price relates to the actual probability of each event occurring. A good value prediction is one where the price is lower than the likelihood of the event occurring.

Confused? Don’t panic, here’s a real-life example of a prediction market, similar to the ones covered in our Kalshi vs Robinhood guide, plus an explanation of how you can read the market prices as probabilities to determine the value of each option:

An example of how to read market prices as probabilities

Here are the prediction market prices for an upcoming NFL game between the Dallas Cowboys and Baltimore Ravens:

Cowboys	$0.70
Ravens	$0.30

As we explained previously, the team with the higher price (namely, the Cowboys) are perceived by the market to be more likely to win. In practical terms, this means that if you want to back Dallas by buying 10 contracts on them, it will cost you $7.00 ($0.70 x 10). In other words, the market price multiplied by the number of contracts. If Dallas are defeated, then you lose your $7 outlay, but if they win, your return will be $10 ($1 x 10).

The big question is - which team should you back based on the probability of them winning?

Luckily, the formula for reading the market price as a probability couldn’t be any simpler and just requires you to convert the cent price into a percentage. In other words:

	Market price	Probability of winning
Cowboys	$0.70	70%
Ravens	$0.30	30%

You then need to assess the market probabilities and decide which option offers the better value. So, if you think that the Cowboys have a better than 70% chance of winning, then the smart option is to back them. But if you think that the Ravens are being undervalued by the market (i.e., they have a better than 30% chance of winning), then you should buy contracts in Baltimore.

Verdict - Give prediction markets a try

You should now have a solid understanding of how prediction market prices are calculated, and you can use them to establish the probability of an event occurring. Of course, there are plenty of other prediction market topics you need to get the lowdown on, so make sure you carefully read our other expert guides on the topic. Then, once you’re fully on board with how prediction markets work and you want to give them a try, remember to read our exclusive brand reviews to find the right sites for you and to ensure you pick up the very latest new user offers.

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How to read market prices: FAQs

🧐 Are prediction markets legit?

Yes. Prediction markets do not come under the same laws as online sportsbooks. Nevertheless, they are completely legitimate and available across the United States.

🧑‍🔬 How are prediction market prices calculated?

As prediction markets are peer-to-peer platforms, the costs of event trading are purely based on how users are currently trading. If an option becomes more popular with users, the market price will rise, and vice versa.

📈 How can I read market prices as probabilities?

To work out the probability of an event occurring based on its market price, simply convert the market price (in cents) into a percentage.

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