Expected value calculator for prediction markets

The formula

For one contract bought at price P (in dollars) with fee F, if you think it wins with probability q:

• Profit if it wins = 1 − P − F
• Loss if it loses = P + F
• Expected value = q × (1 − P − F) − (1 − q) × (P + F), which simplifies to q − P − F

In words: your edge is your probability minus the price, and the fee comes straight off it. The fee here is rate × contracts × P × (1 − P), rounded up to the next cent per order, the shape of the standard taker fee at a major US-regulated exchange (rate 0.07). Set the rate to match your exchange, or to 0 for none.

A worked example

You buy 100 contracts at 40¢ because you think the chance is 50%. They cost $40.00 and the fee is $1.68. If the outcome happens you collect $100 for a profit of $58.32; if not you lose $41.68. At 50%, the expected profit is $8.32, or +20% on what you spend. Without the fee it would be $10.00.

The probability you need to break even

Fees mean a price of 40¢ is not a 40% bet. You break even at (cost + fee) ÷ payout, which in the example is 41.68%. The table shows how far fees move the bar for 100 contracts at each price.

Your probability is the hard part

The calculator is exact; your input isn't. Most traders are too confident, and a probability that is a few points too high turns a good-looking trade into a losing one. Write your probability down before you trade, then compare it with what happens across many trades. If your 60% calls come true about 60% of the time, your estimates are worth using.

Expected value is not what you will get

A positive expected value still loses often: a 50% trade loses half the time. How much you put on each trade decides whether a run of losses is survivable, especially with a prop firm's drawdown limit. Use the Kelly calculator to size the trade and the drawdown calculator to see how much room you have.