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The Outcome Market / The arithmetic
A book of contracts, settled, in money
The book settled in money
The counts on this site only matter once they are money. This page follows one book of 500 contracts from the price paid, through the settlement, to the number left after the cost - and the answer is that a book priced exactly at the market’s own probability still loses the fee.
Desk spec
- contracts
- 500
- price paid
- 62c
- resolved yes
- 312
- net after cost
- -8.00
the contractA question turned into a tradable share. It pays a fixed amount on yes and nothing on no, and its price sits from 0c to 100c. On the samples it pays 1.00 and trades at 62c.
the priceThe market's implied chance of the event, so 62c is a 62.0% chance. The bid and the ask bracket it, and the 2c between them is the first cost a trader pays.
the settlementThe named source publishes the answer, and the payout follows. Of 200 sample contracts, 176 settled from the source and 4 were voided and refunded.
Direct answerA book of 500 contracts bought at 62c costs 310.00. If 312 of them resolve yes they pay 312.00, a 2.00 gross gain, but the taker fee of 0.02 a contract is 10.00, so the book ends 8.00 down. Buying at the market's own probability with a transaction cost is a losing position by arithmetic, before any view.
From the price to the payout
The book's money has three parts: what was paid, what was received, and what it cost to trade. Every figure below derives from samples A, C and H.
Sample J - one book of 500 contracts
| Step | Per contract | On 500 | Source |
|---|
| buy at the ask | 0.62 | 310.00 | sample A |
| 312 resolve yes at 1.00 | 1.00 | 312.00 | sample H |
| 188 resolve no at 0.00 | 0.00 | 0.00 | sample H |
| taker fee | 0.02 | 10.00 | sample C |
| net | -0.016 | -8.00 | 310.00 paid, 312.00 received, 10.00 fee |
sample J - the book in money
contracts bought = 500 at 0.62 each
capital paid = 500 x 0.62 = 310.00
resolved yes = 312 -> 312 x 1.00 = 312.00
resolved no = 188 -> 188 x 0.00 = 0.00
received at settlement = 312.00 + 0.00 = 312.00
gross = 312.00 - 310.00 = +2.00
taker fee = 500 x 0.02 = 10.00
net = 2.00 - 10.00 = -8.00
the market priced the event at 62.4% and the buyer paid 62c,
so the price was fair and the position still lost 8.00,
entirely to the cost of trading it.
Where the 8.00 came from
Nothing here is a bad decision by the buyer. The event resolved exactly at the market's own implied probability, 62.4% against a price of 62c, so the price was right. The loss is the fee, and only the fee - which is why the cost of a trade is the part of the arithmetic a reader can control.
sample J - the same book if it had been a maker
as a taker, fee 0.02 a contract = 10.00 -> net -8.00
as a maker, fee 0.00 a contract = 0.00 -> net +2.00
but the maker's order at 60c would have paid:
500 x 0.60 = 300.00 paid
received = 312.00
net = 312.00 - 300.00 = +12.00
if it filled at all, which sample I says happens
for 71 of 120 attempts at the touch.
so a maker's 12.00 and a taker's -8.00 are the two ends
of the same decision, separated by 20.00 on 500 contracts.
Holding against closing
A position does not have to reach settlement. Of 300 positions on the samples 183 were held to the end and 84 were closed early, and the early closers paid the spread twice rather than the settlement once.
sample I and J - held against closed
positions = 300
held to settlement = 183 -> 61.0%
closed early = 84 -> 28.0%
expired unfilled = 33 -> 11.0%
if the 84 early closers each paid a 2c spread twice:
84 x 0.02 x 2 = 3.36 extra in spread
against the 183 who paid no spread at settlement
so whether to hold is a cost decision as much as a view,
and the 33 that expired unfilled paid the entry cost
and got neither an exit nor a settlement on their terms.
Every number on this page is invented and derives from the ten samples. No real venue, event or account is described, and no real fee schedule is reproduced. The arithmetic is shown so a reader can re-run it with their own price and cost.
Working out your own deal
- Write down the price paid, the payout, and the fee as three separate numbers.
- Multiply each by the size to get the money, because that is what the account sees.
- Compare the gross gain with the fee before deciding the trade was good.
- Ask whether the position can be made as a maker instead of a taker.
- Decide in advance whether you are holding to settlement or closing early, and cost both.
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