Is this prediction market trade actually positive expected value?
A trade is positive expected value only when your true probability edge is large enough to clear the price you pay and the trading friction you expect. Good stories do not matter if the math is still negative after costs.
- Best for
- Filtering trade ideas before sizing them
- Primary output
- Expected value after modeled friction
- Use before
- Any directional trade based on edge
Read the result well
- Turns your probability estimate into dollar EV and EV percent
- Shows breakeven probability after friction
- Separates market-implied probability from your own view
Method and assumptions
How expected value works in a binary market
In a binary prediction market, the contract either pays $1.00 or it pays $0.00. That makes EV conceptually straightforward: weigh the net profit if you are right against the net loss if you are wrong, then scale both by your estimated probabilities.
- Market price gives the implied probability you are buying or fading.
- Your own probability estimate determines whether an edge exists.
- Costs increase the breakeven probability you need to justify the trade.
What to enter in the EV calculator
Use the contract price you expect to pay, not the most optimistic screenshot from the top of the book. Then enter your own fair probability estimate. That estimate is the hardest part of trading and the place where real edge, if any, comes from.
- Estimate your fair win probability before you look for reasons to justify the trade.
- Use the likely fill price, not the best theoretical quote.
- Model friction with a slightly conservative bias.
- Reject trades that are only barely positive under optimistic assumptions.
Worked expected value example
Suppose a contract trades at $0.42, you estimate the event at 56%, and you want to commit $250. Before costs, the idea looks attractive because the market is pricing the event below your estimate. After fees and slippage, the relevant question becomes whether the edge is still wide enough to justify the risk.
- Positive EV does not guarantee the next trade wins.
- Negative EV can still occasionally win, but it is not a good repeated decision.
- The larger the modeled edge, the more room you have for estimation error.
Common expected value mistakes
The biggest mistake is confusing confidence with probability. Traders often say they feel very confident, but they have not converted that feeling into a number that can be compared with the market price.
- Using narratives instead of quantified probability estimates
- Ignoring fees or slippage because they look small
- Treating EV as a guarantee instead of a repeated-decision metric
- Skipping sizing discipline after identifying a positive EV trade
Use EV before Kelly: First decide whether the trade is worth taking. Then decide how big it should be. Reversing that order is how traders oversize weak ideas.