How to find arbitrage in prediction markets?
Prediction markets like Polymarket often price events based on user trading. Sometimes, inefficiencies occur where the combined implied probability of all mutually exclusive outcomes (like Yes and No) falls below 100%.
When the total implied probability is under 100%, an arbitrage opportunity exists. This means you can distribute your capital across all possible outcomes and guarantee a risk-free profit, regardless of the final result.
What is Implied Probability?
Implied probability converts the odds (or share prices) offered by a market into a percentage likelihood of that event occurring. In binary markets where shares pay out $1.00, a share priced at $0.65 implies a 65% probability of that event happening.
How do you calculate the "Vig" or House Edge?
The "vig" (vigorish) or overround is the built-in profit margin for the market maker. You calculate it by summing the implied probabilities of all possible outcomes. If the total is 105%, the market has a 5% vig. A fair market without fees would sum exactly to 100%.
How to use the Arbitrage Calculator?
Enter the current prices or decimal odds for all outcomes of an event. Our tool instantly calculates the total probability. If the Market Status indicator flashes green, an arbitrage opportunity is present. The calculator will then display the guaranteed profit margin available.