Expected value (EV) is the single number that tells you whether a trade is worth entering at all. The formula is simple: (your probability × the profit if right) − (probability of being wrong × the loss if wrong). A positive result means you have an edge; a negative one means the price is expensive no matter how "certain" the event feels.
This guide walks through the formula with a full worked example built on reading prices as probabilities, when positive EV misleads you, and the mistakes that quietly break the calculation. Practise on PolySouq — the leading Arabic prediction market platform — with 10,000 free coins on sign-up and zero financial risk.
Expected value is the average outcome of a decision if you repeated it hundreds of times under identical conditions. It is not a prediction about any single trade — you can lose a positive-EV trade and win a negative-EV one — but over a run of trades it is the thing that decides your results.
In prediction markets the price sits between 0 and 100 cents and is the market's probability for the event. That makes EV far easier to compute here than in equities: the probability is displayed for you, and all you need is your own estimate to compare it against.
For a "Yes" contract priced at P cents, with your own probability estimate Q:
EV = (Q × (100 − P)) − ((1 − Q) × P)
Which simplifies beautifully to EV = (Q × 100) − P. In other words, the expected value of each contract is just the gap between your probability expressed as a price and the price on screen. Estimate 55% while the market shows 40 cents and your EV is +15 cents per contract. The rule follows: only enter when your estimate differs from the price by a margin worth having.
A market asks whether Brent crude closes above a given level at month end, and "Yes" trades at 40 cents — a 40% market probability. After reviewing production data, inventories and producer statements, you put the true probability at 55%.
The maths: if you are right you gain 60 cents per contract; if wrong you lose 40. So (0.55 × 60) − (0.45 × 40) = 33 − 18 = +15 cents per contract. That is a reasonable edge. Had your estimate been 42%, the edge would be +2 cents — a number any small estimation error swallows whole, and a market better skipped than traded on a phantom edge.
Edge is your entire justification for being in a market. The price is not arbitrary; it is the distilled view of every participant, which is why it is accurate more often than not. Disagreeing with it is a claim that you know or read something better than the crowd — and that claim needs backing.
So ask before every trade: why am I right and the market wrong? If you cannot name something specific — fresher data, a sharper reading of the settlement rule, a source others do not follow — your supposed edge is probably overconfidence rather than information.
The fastest way to internalise expected value is to repeat it on real markets without financial pressure. On PolySouq your account starts with 10,000 free coins the moment you sign up — zero financial risk — so you can log your estimate and the market price before every trade, then compare after settlement to see whether your estimates are genuinely calibrated or simply optimistic.
As results accumulate, the quality of your calculations shows up directly in your leaderboard ranking — a far more honest measure of performance than a personal impression.
A disciplined trader does not ask "will this happen?" but "is the displayed price above or below my true probability?" That small shift in the question is the whole difference. Calculate EV before every trade, insist on a sufficient edge, and size the position according to sound capital management.
Trading prediction markets on PolySouq is lawful and legitimate, and it is halal: no riba, no leverage, settlement by an official source, and decisions driven by information and probability rather than chance.
It is the average return a decision produces if repeated many times. You calculate it by subtracting the contract price from your own probability expressed as a price: estimate 55% against a 40-cent price and your EV is +15 cents per contract.
Read the settlement rule, set your probability estimate before looking at the price, start from the historical base rate, adjust only for genuinely new information, then subtract the price from your estimate × 100. A positive result means an edge.
The price is the crowd's current probability estimate. Expected value is the gap between that price and your own estimate. The price is given; the expected value is your judgement about it.
No. It only guarantees a statistical advantage over a long run of trades, and you can lose many positive-EV trades along the way. That is why trade count and careful position sizing matter.
There is no absolute rule, but many traders require at least 7–10 cents between their estimate and the price, because smaller gaps are swallowed by estimation error and thin liquidity.
Treating a low price as automatically cheap, ignoring the historical base rate, overreacting to a single headline, and revising the estimate after entering in order to justify the position.
No. One multiplication and one subtraction is enough. The hard part is not the arithmetic but estimating the probability honestly, which improves with repetition and post-settlement review.
Sign up free on PolySouq, receive 10,000 coins immediately, and log your estimate alongside the market price before each trade. Trading uses free coins with zero real financial risk.
Disclaimer: Prediction markets are a legal and legitimate way to trade information about the outcomes of future events. However, trading carries risk and you may lose the full amount you trade — so only trade what you can afford to lose. This content is educational and is not financial or investment advice.