How Prediction Market Prices Work: Bid, Ask, Midpoint and the Cost of a Cent

A prediction market price is a probability only after you specify which price. The bid is what someone will pay you. The ask is what you must pay to buy. The midpoint is the average of the two, and the last trade is simply the most recent transaction. They can tell different stories, and the gap between them is where inexperienced traders lose money.

On Polymarket, the displayed price is normally the midpoint. If the bid is 44 cents and the ask is 48 cents, the screen shows 46 cents. But you cannot buy at 46. You buy at 48 or sell at 44. The displayed probability is a summary, not an executable quote.Prices and order books

Bid, ask and the midpoint

The order book has two sides. Bids are resting buy orders, ranked from highest to lowest. Asks are resting sell orders, ranked from lowest to highest. The best bid and best ask form the touch. Everything else is depth.

The midpoint is useful because it smooths noise. If the last trade was a small order that lifted a stale ask, the midpoint may better reflect where the market sits. Polymarket uses the midpoint for display unless the spread is wider than $0.10, in which case it shows the last traded price instead. That exception is a useful warning: a market with a ten-cent spread is not a clean probability signal.Prices and order books

The last trade is a historical fact, not a current offer. It may have happened seconds ago or hours ago, at a size of five shares or five thousand. Treating it as the market's forecast is one of the most common errors in prediction market analysis.

The spread is the first cost

Suppose Yes has a bid of 44 cents and an ask of 48 cents. The spread is 4 cents. As a share of the 46-cent midpoint, that is 8.7%. If you buy 1,000 shares at 48 and immediately sell at 44, you lose $40 on a $460 position before fees. Nothing about the event has to change for that loss to happen.

The spread also sets a minimum edge. If you buy at 48 cents, you need the true probability to be above 48% just to break even on the event, before fees. If you plan to sell before resolution, you need the price to rise by more than the spread plus both fees.

Tight spreads are a sign of competition among market makers. Wide spreads are a sign of thin liquidity, uncertainty, or both. Neither tells you whether the market's probability is right. They tell you what it costs to find out.

Why one cent matters

A one-cent move is one percentage point of implied probability, but its effect on your return depends on the starting price. On 1,000 shares, a 1-cent move is $10. At a 50-cent price, the position is worth $500, so $10 is 2%. At a 5-cent price, the position is worth $50, so $10 is 20%.

That asymmetry is why cheap contracts attract attention and why they are dangerous. A move from 2 cents to 3 cents is a 50% gain in price terms, but it is still a 3% implied probability. The dollar payoff is small unless you own a large number of shares, and the probability of winning is correspondingly small.

Tick size matters too. Polymarket markets use a minimum price increment that can be 10 cents, 1 cent, 0.5 cents, 0.25 cents, 0.1 cents or finer, depending on the market. A market with a 1-cent tick cannot express a 47.4% probability; it can only quote 47 or 48 cents. That rounding is small at 50 cents and large near the extremes.Market details

A concrete calculation, including fees

Take a politics market with a 4% taker fee rate. You buy 100 Yes shares at 48 cents and sell them at 50 cents. The gross profit looks like $2: you pay $48 and receive $50.

Polymarket's fee formula is: fee = shares × fee rate × price × (1 - price). At 48 cents, the buy fee is 100 × 0.04 × 0.48 × 0.52 = $0.9984. At 50 cents, the sell fee is 100 × 0.04 × 0.50 × 0.50 = $1.00. Total fees are about $2.00. You receive $49 after the sell fee and paid about $49 after the buy fee, so the net result is approximately zero.Fee schedule

So a two-cent move on 100 shares produced no profit. The trade needed a larger move, a larger size, or a lower fee. Geopolitical and world events markets are fee-free on Polymarket, which changes the math, but most categories are not.

If you hold to resolution instead of selling, the calculation is different. You pay $48 plus roughly $1.00 in fees, or $49.00 for 100 shares. If the event happens, you receive $100, a profit of $51, or about 104% on the amount at risk. The break-even probability is 49%, not 48%, because the fee is part of your cost.

What the quote does not tell you

The quoted midpoint does not tell you how much you can trade. A market can show a 46-cent midpoint with 200 shares on each side, or with 200,000. The first will move several cents if you try to buy $5,000; the second may absorb it with little impact. The order book API exposes the full ladder, including size at each price, which is the most direct way to estimate execution cost.Order book data

It also does not tell you why the price moved. A one-cent change can be an informed trade, a market maker adjusting inventory, or a single user crossing the spread. Comparing the move with volume and depth helps separate signal from noise. A price change on tiny volume is weak evidence.

Finally, the quote does not price resolution risk. Two markets can both trade at 60 cents: one with a precise official source and a clean end date, another with a rule that could be read two ways. The second should demand a larger margin of safety, because the probability of the event is not the only thing that determines your payout.

Reading a quote in practice

Start with the executable prices, not the midpoint. Ask what you would pay to buy and what you would receive to sell. Compare the spread to the midpoint and to the size you want. Then add fees and check the tick size. If the resulting break-even probability is still below your estimate, you have a trade. If it is not, the market is telling you that your edge is smaller than it looked.

A prediction market price is a probability with a transaction cost attached. The traders who last are the ones who treat the cost as part of the probability, not as an afterthought.