What Are Prediction Markets?
A prediction market is an exchange where you buy and sell shares in an outcome. Each share pays $1 if the outcome happens and $0 if it doesn't — so its price, quoted in cents, is simply the market's implied probability. Polymarket and Kalshi are the two biggest. Nothing about the maths is new: selling a share is a lay bet wearing different clothes.
The share is the whole idea
Forget odds for a moment. On a prediction market, every outcome is a contract that settles at one of two values: $1 if it happens, $0 if it doesn't. There is no middle.
So if a share in “Arsenal win” is trading at 33¢, the market is collectively saying: this has roughly a 33% chance. Buy it for 33¢ and you either receive $1 (a 67¢ profit) or nothing. That's it — the entire mechanism.
Price is probability
share price in cents ≈ implied probability %
This is why prediction markets feel intuitive to people who have never placed a bet, and slightly alien to people who have. A bookmaker says “3.03”. A prediction market says “33¢”. They are the same statement.
Converting between cents and decimal odds
You only need one formula in each direction, and they're the same formula:
Conversion
decimal odds = 1 ÷ price in dollars
price in dollars = 1 ÷ decimal odds
| Share price | Implied probability | Decimal odds |
|---|---|---|
| 20¢ | 20% | 5.00 |
| 33¢ | 33% | 3.03 |
| 50¢ | 50% | 2.00 |
| 67¢ | 67% | 1.49 |
| 80¢ | 80% | 1.25 |
Buying and selling, not backing and laying
A prediction market has two verbs where a betting exchange has two verbs — and they line up exactly:
- Buying a share = betting for the outcome = backing it.
- Selling a share = betting against the outcome = laying it.
The second one is what matters for arbitrage, and it deserves proof rather than assertion.
Why selling a share is a lay bet
Take a lay bet first. Lay €10 at decimal odds of 3.00: you win €10 if the outcome doesn't happen, and you owe the liability (3.00 − 1) × 10 = €20 if it does.
Now sell shares. Sell 30 shares at 33¢: you receive 30 × 0.33 = $10 immediately, and if the outcome happens you must deliver $1 per share, of which you already hold 33¢ — so you owe 30 × (1 − 0.33) = $20.
Identical. And it's not a coincidence of these numbers — it holds generally:
The equivalence
Selling N shares at price P receives N × P and risks N × (1 − P).
Laying N × P at odds 1 / P risks (1/P − 1) × N × P = N × (1 − P). The same number.
So every technique you already know from back & lay on a betting exchange transfers directly. What changes is the arithmetic you do at the keyboard — and the fees.
Fees work differently — and that matters
A betting exchange charges a flat commission on your net winnings: 2–5%, and only when you win. Prediction markets charge a taker fee that depends on the price:
Taker fee
fee = coefficient × shares × P × (1 − P)
The P × (1 − P) term is uncertainty itself. It peaks at 50¢ (where it equals 0.25) and collapses towards zero as the price approaches 1¢ or 99¢. In practice:
- Kalshi uses a coefficient of 0.07, rounded up. On 100 contracts the worst case is
0.07 × 100 × 0.25 = $1.75, at 50¢. - Polymarket uses a per-category rate; sports moved from 0.03 to 0.05 in July 2026, so the worst case on 100 shares went from $0.75 to $1.25.
- On both venues, resting limit orders (maker orders) generally pay less or nothing. The figures above are the taker case — the conservative one, and the one that applies when you need to fill immediately.
Why this bites arbitrage
The fee is worst exactly where most arbitrage lives — near even money. A 1.5% edge on a 50¢ market can be swallowed whole by a taker fee that a 5% flat exchange commission would barely have touched. Always compute profit after fees, never before.
Prices are in dollars, and that's a second exposure
Both venues are USD-denominated — Kalshi in dollars, Polymarket in USDC, a dollar stablecoin. If your bookmaker leg is in euros, the pair of legs is not purely a bet on the match: it also carries a small EUR/USD exposure between placing and settling.
On a 1–2% arbitrage margin, a 1% currency move is not a rounding error. ArbPlay converts prediction-market figures to EUR and shows the dollar original alongside so you can see both, but the exposure itself is real and yours.
Availability: check before you plan around it
Prediction markets are regulated very differently from licensed sportsbooks, and the map changes often. Both Polymarket and Kalshi maintain their own lists of restricted jurisdictions, both require identity verification (KYC) before you can deposit or trade, and both have added and removed countries during 2026.
Do this first
Before building any strategy around a prediction market, read that venue's own current terms for your country of residence and confirm you can complete KYC there. Do not rely on a third-party list — including this one. Availability is the venue's decision and it changes without notice.
FAQ
What is a prediction market?
A prediction market is an exchange where you buy and sell shares in the outcome of a real-world event. Each share pays out exactly $1 if the outcome happens and $0 if it doesn't, so its price — quoted in cents between 1 and 99 — is the market's implied probability. Polymarket and Kalshi are the two largest.
How do I convert a share price in cents to decimal odds?
Divide 1 by the price in dollars. A share trading at 33 cents is 1 / 0.33 = 3.03 in decimal odds. Going the other way, decimal odds of 2.50 correspond to a share price of 1 / 2.50 = 0.40, or 40 cents.
Is selling a share the same as laying a bet?
Economically, yes. Selling N shares at price P gives you N × P now and costs you N × (1 − P) if the outcome happens. That is identical to laying a stake of N × P at decimal odds of 1 / P, where the liability is also N × (1 − P). Same trade, different vocabulary.
Do prediction markets charge commission?
Not a flat commission like a betting exchange. Both Polymarket and Kalshi charge a taker fee that depends on the price: fee = coefficient × shares × P × (1 − P). The fee is largest at 50 cents, where uncertainty is highest, and falls towards zero near 1 or 99 cents. Resting limit orders (maker orders) generally pay less or nothing.
Related: Prediction markets vs betting exchanges · Arbitrage with prediction markets · Back & lay explained · all guides.