Fair value is the price a contract would trade at if it exactly matched the true probability of its outcome, which for a binary contract that pays one dollar is simply that probability expressed in cents.
Last reviewed 6 October 2025 · Educational, not advice
Fair value is a way of asking what a contract is really worth, separate from the price the screen happens to show. For a binary event contract that pays one dollar if its condition is met and zero if it is not, the fair value is the genuine probability of that condition, written in cents. If an outcome truly had a forty percent chance, its fair value would be forty cents. The catch is that nobody knows the true probability, so fair value is an estimate, and reasonable people will estimate it differently.
This is why fair value is a tool for thinking, not a number you can look up. A trader forms a view of the probability from base rates, evidence, and judgement, converts it to a fair value in cents, and compares that with the market price. If their estimate of fair value is higher than the price, they may see the contract as cheap, and if it is lower they may see it as expensive. The word may is doing real work there, because the market price reflects the combined view of everyone trading, and the individual estimate can easily be the one that is wrong.
Fair value connects directly to expected value and to edge. Expected value asks what a position is worth on average given a probability, and edge is the gap between your fair value estimate and the price, after fees. A positive edge only exists if your probability estimate is genuinely better than the market, which is hard and never guaranteed. Treating your own fair value as obviously correct is the most common way to talk yourself into a poor trade, so the honest version always carries doubt about the estimate itself.
Fees and structure also sit between fair value and reality. The price you actually pay includes the spread and any platform fee, so a contract at its fair value can still be a losing position once costs are included. Fair value is best used as a discipline, a way to state clearly what you think something is worth and why, rather than as a promise that the market will move to meet your number.
Suppose you judge an outcome has about a fifty five percent chance, so your fair value is fifty five cents, and the market offers it at fifty cents. The five cent gap is your estimated edge before fees. If your probability is right, the position is favourable on average. If your estimate is too high, which you cannot rule out, the apparent edge is an illusion and the trade can still lose.
Illustrative only. Numbers are examples, not a quote or a prediction, and exclude fees.
Fair value is your estimate, not a fact about the market. Prediction markets can lose you money, and a confident estimate can be wrong. Stake only what you can afford to lose, never to chase a loss, and never on borrowed money. If it stops feeling like a free choice, step back. In the United States you can call or text the helpline on 1-800-GAMBLER or visit ncpgambling.org.
Fair value is the price a contract would trade at if it exactly matched the true probability of its outcome. For a binary contract that pays one dollar, the fair value in cents is simply that probability.
You estimate the genuine probability of the outcome from base rates, evidence, and judgement, then express it in cents. It is always an estimate, because the true probability is unknown and different people will reach different numbers.
No. The market price is what people are actually trading at, while fair value is an estimate of what the contract is worth. The difference between your fair value and the price, after fees, is what traders call edge.
Not necessarily. Fees and the spread sit between fair value and the price you pay, so a contract bought at its fair value can still lose once costs are included, and your estimate of fair value can be wrong.
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