The Math Behind Directional Betting in Binary Markets

Originally published at chudi.dev Binary markets strip away ambiguity. Either the event happens or it doesn't. You either get paid $1.00 per share or you get $0. This clarity makes the math clean — and makes it immediately obvious whether you have an edge. Most people who lose money in prediction markets are not doing the math wrong. They are skipping it entirely. TL;DR Expected value = (true probability × net gain) - (loss probability × stake) You have edge when your true probability estimate exceeds the market's implied probability Kelly criterion sizes the bet to maximize long-run bankroll growth Fees shrink your EV and require a larger edge to break even The hard part is honest probability estimation — every overconfidence point is money transferred to the market The Mechanics of a Binary Market A binary market works like this: you buy YES shares if you believe an event will occur, or NO shares if you believe it won't. Each share costs between $0.01 and $0.99, and pays $1.00 on res