Probability Price
In prediction markets, outcome prices are commonly treated as probabilities. A probability price converts trading activity into a number between 0 and 1 that represents expected likelihood.
This interpretation works because of how payouts are structured. If an outcome pays a fixed amount when it occurs, its price naturally reflects how likely traders think it is. Probability prices update continuously as participants trade. New information, changing sentiment, and shifts in liquidity all influence how the price moves. These prices are not guarantees. They represent aggregated belief under uncertainty, shaped by incentives and risk tolerance.
For analysts, probability prices are the core signal in prediction markets data. They allow forecasts to be compared, tracked over time, and evaluated against real outcomes.
Why It Matters
Probability prices turn market behavior into measurable forecasts. They make collective expectations usable for analysis and decision-making.
How is a probability price different from a stated probability?
A probability price is derived from trading behavior, not from a direct estimate. It reflects incentives, capital at risk, and market structure. Stated probabilities may come from models or surveys, while probability prices come from real trades. This often makes them more responsive to new information.
When can probability prices be misleading in prediction markets?
Probability prices can be misleading in low-liquidity or highly emotional markets. Thin trading, hype, or large individual trades may distort prices temporarily. Analysts often look at liquidity and confidence signals to assess reliability. Context is essential when interpreting probability prices.
How are probability prices evaluated after an event resolves?
After resolution, probability prices are compared to actual outcomes to measure accuracy and calibration. Prices close to 1 that resolve true are considered strong forecasts, while confident prices that resolve false reveal error. Historical probability prices are used in backtesting and performance analysis. This evaluation turns forecasts into measurable results.
Real-World Example
On Polymarket, an outcome priced at 0.75 is commonly read as a 75% chance of occurring. As new information arrives, the probability price may move up or down to reflect changing belief.
Probability Price and FinFeedAPI
FinFeedAPI’s Prediction Markets API provides probability price data at the outcome level. Analysts can track probability prices over time, compare them across events, and evaluate them after resolution. This supports forecasting analysis, calibration studies, and model development. The API enables consistent access to probability prices across prediction markets.