- What: Implied probability is the market's probability estimate embedded in a share price — a YES share at 72¢ means the crowd assigns 72% probability to that outcome happening.
- Why it matters: Your entire edge on Polymarket comes from spotting the gap between implied probability and your own well-researched estimate — no gap, no trade.
- Key conversion: Decimal odds → implied probability: 1 ÷ decimal odds. American odds (−150) → 150 ÷ (150 + 100) = 60%. Polymarket price IS the implied probability directly (65¢ = 65%).
- Bottom line: When your estimate exceeds implied probability by 5+ percentage points AND the market has adequate liquidity, you have a quantifiable edge worth sizing with Kelly Criterion.
Contents
What Is Implied Probability?
Implied probability is the probability of an outcome as encoded by market prices or betting odds. It represents the collective wisdom of all market participants about how likely an event is to occur.
The term "implied" is important: it's the probability implied by the price, not a historical frequency or expert estimate. In an efficient market, implied probability equals the true probability. In practice, inefficiencies create opportunities for skilled traders.
Converting Odds to Implied Probability
Decimal Odds (most common in crypto/prediction markets)
American Odds (moneyline)
Quick Reference Table
| Decimal Odds | American Odds | Implied Prob | Polymarket Price |
|---|---|---|---|
| 1.10 | -1000 | 90.9% | 91¢ |
| 1.25 | -400 | 80.0% | 80¢ |
| 1.50 | -200 | 66.7% | 67¢ |
| 2.00 | +100 | 50.0% | 50¢ |
| 2.50 | +150 | 40.0% | 40¢ |
| 3.00 | +200 | 33.3% | 33¢ |
| 5.00 | +400 | 20.0% | 20¢ |
| 10.00 | +900 | 10.0% | 10¢ |
Implied Probability on Polymarket
Polymarket makes implied probability explicit: the price of a YES share in cents directly equals the implied probability in percent. YES at 65¢ = 65% implied probability. NO shares (= 1 − YES price) at 35¢ = 35% probability of NO.
This 1:1 relationship makes Polymarket one of the most intuitive probability markets in existence. You don't need to do any conversion — the price is the probability.
Example: "Will BTC reach $150,000 by end of ?" — YES at 32¢ means the market assigns 32% probability. If you believe the true probability is 45%, you have a 13 percentage-point edge and should consider buying YES.
Overround & the Vig
In traditional sportsbooks, the sum of implied probabilities across all outcomes exceeds 100%. This "overround" (or vig/juice) is the bookmaker's profit margin. A book that prices Team A at 1.90 and Team B at 1.90 (even money for both) has implied probs of 52.6% each, totaling 105.2% — a 5.2% overround.
On Polymarket, YES + NO prices always sum to ~$1.00, meaning zero theoretical overround. This is why prediction markets are considered more accurate than sportsbooks — there's no built-in bias toward pricing favorites too low.
Using Implied Probability to Find Edge
Your edge in any market is the difference between your probability estimate and the market's implied probability:
If the market prices YES at 40% and your model says 55%, you have +15% edge. That's an excellent trade opportunity. Use the Kelly Criterion Calculator to size the position optimally.
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