What Is Expected Value (EV)? Prediction Market Math for Traders
Expected value (EV) is the average outcome of a trade if repeated many times. Positive EV trades are the foundation of profitable prediction market trading.
Definition
Expected value (EV) is the probability-weighted average of all possible outcomes of a trade. A trade with positive expected value (+EV) is profitable on average over many repetitions; negative EV (-EV) trades lose money over time.
The Formula
EV = (Probability of Winning x Profit if Win) - (Probability of Losing x Loss if Lose)
Example
YES shares trade at $0.55. You believe the true probability is 70%.
- Profit if win: $1.00 - $0.55 = $0.45
- Loss if lose: $0.55
- EV = (0.70 x $0.45) - (0.30 x $0.55) = $0.315 - $0.165 = +$0.15
This means for every $0.55 you invest, you expect to earn $0.15 on average. That is a +27% expected return — a strong +EV trade.
Finding +EV Trades
The key to profitable prediction market trading is finding situations where the market-implied probability differs from the true probability:
- Market says 50%, you know 70% — buy YES, strong +EV
- Market says 80%, you think 80% — no edge, skip it
- Market says 40%, you think 30% — buy NO at $0.60 for +EV
Why EV Matters More Than Any Single Trade
Individual trades will win or lose randomly. But over hundreds of +EV trades, the math works in your favor — just like a casino’s edge over gamblers.
EV on Purrdict
Purrdict’s on-chain architecture and sub-second settlement mean you can act on +EV opportunities the moment you spot them — no delays eating into your edge.