Prediction Markets Lab

Key terms and concepts used in this prediction markets calculator.

Implied Probability

The market's estimate of an event's likelihood, derived from the current price. A contract priced at $0.65 implies a 65% probability. Not your model—the market's view.

Spread (Bid-Ask)

The difference between the best bid (highest buy order) and best ask (lowest sell order). Wider spreads indicate higher transaction costs and lower fill quality. Warning shown at >10% spread.

Orderbook Depth / Liquidity

The dollar amount available to trade at or near the current price.

• Kalshi: Sum of top 3 orderbook levels
• Polymarket: Top orderbook level only

Higher depth = lower market impact when trading.

Fee-Adjusted Price

Market price multiplied by (1 + platform fee rate). This is your true cost basis when calculating edge. fee_adjusted_price = market_price × (1 + fee_rate)

Edge

Your informational advantage: the difference between your probability estimate and the fee-adjusted market price. edge = user_probability − fee_adjusted_price
Positive edge = potential profit opportunity.

Kelly Fraction

The optimal percentage of your bankroll to wager, calculated to maximize long-term growth.

• v1 (Edge-Based): kelly_fraction = edge
• v2 (Canonical): kelly_fraction = edge / (1 − fee_adjusted_price)

Capped at 25% of bankroll for safety.

Liquidity Cap

Maximum position size based on available orderbook depth. Default: 50% of available liquidity to minimize market impact. liquidity_cap = available_liquidity × 0.5

Final Size

The recommended position size after applying all constraints. final_size = min(kelly_size, liquidity_cap)
This is the amount you should consider wagering.

Expected Value (EV)

The average profit or loss you'd expect if you could repeat this trade many times. EV = edge × final_size
Positive EV indicates a statistically favorable trade.

Risk of Ruin

The probability of losing your entire bankroll through a series of trades. High Kelly fractions (>10-25%) dramatically increase risk of ruin. Always consider fractional Kelly for variance reduction.

Fractional Kelly

Betting a fraction of the full Kelly amount (e.g., half-Kelly = 50%).

• Half-Kelly: Recommended default. 50% of Kelly, ~75% of growth, ~50% of variance.
• Quarter-Kelly: Conservative. 25% of Kelly for high uncertainty.

Reduces variance and risk of ruin while sacrificing some growth.

Platform Fees

• Kalshi: ~7% on profits (CFTC-regulated)
• Polymarket: ~2% maker/taker (on-chain, USDC)