Implied probability

Implied probability converts a prediction-market contract's price directly into a percentage: a contract priced at $0.74 implies a 74% chance of the event resolving "yes," since arbitrage keeps a contract's price anchored close to what buyers and sellers collectively believe its expected payout is worth. It updates continuously as new information arrives and as traders buy and sell, so the same contract's implied probability can move meaningfully within a single day around news relevant to the underlying question.

Read implied probability as a real-time aggregate of everyone currently willing to trade the contract, weighted by how much capital they're willing to risk, which is different from a poll or a single expert's forecast. A rising implied probability over time, the term structure across multiple contracts on the same underlying question, or a sudden jump right after a news event are the more informative reads than the raw percentage at any single instant, since it shows how the crowd's view is actually shifting rather than just where it currently sits.

An implied probability is a price, not a calibrated forecast, and the two only converge as well as the market itself is efficient. Thin markets with low trading volume can sit at a stale or distorted price for stretches, since there may not be enough active trading to correct a mispricing quickly. Fees and the bid-ask spread also mean the price you can actually trade at differs slightly from the quoted midpoint, and a market maker's own inventory or risk limits can temporarily skew pricing away from the crowd's true collective view, especially in less liquid contracts. Treat implied probability as a snapshot of current market pricing, not as the objectively correct odds of the outcome.

Suppose a contract on whether the Fed cuts rates at its next meeting trades at 68 cents, implying a 68% chance of a cut by market pricing. If a stronger-than-expected jobs report drops the following morning, that contract might quickly reprice to 40 cents, implying the crowd now sees a cut as meaningfully less likely, all before the Fed has said anything new itself. The price moved because new information changed what traders collectively believe, not because the actual underlying probability of a Fed decision changed in some objective sense between the two readings.