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The Outcome Market / Fees
No margin, but the spread and the fee are the margin
What an event contract costs to trade
There is no bookmaker setting a price and taking a margin, so it is easy to read an event contract as free. It is not. The spread is paid on entry and again on exit, a taker fee is paid per contract, and those two together are the cost of using the market at all.
Desk spec
- mid
- 61c
- spread
- 2c
- taker fee
- 2c
- round trip
- 6.6%
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 answerAn event contract has no house margin, but it is not free. On the samples a 2c spread and a 2c taker fee make a 4c round trip on a 61c mid, which is 6.6% of the price to open and close a position. A position that moves nowhere still pays that full cost, so the cost is the fee for changing your mind.
Three costs, one number
The spread, the taker fee and the settlement are three separate charges, and only the first and second are paid to trade. Adding them is what turns a price into a real cost.
Sample E - the three costs of one round trip on 100 contracts
| Cost | Per contract | On 100 | When it is paid |
|---|
| the spread, crossing it | 2c | 2.00 | on entry and again on exit |
| the taker fee | 2c | 2.00 | on a fill that crosses the book |
| a maker fee, where one applies | 0.00 | 0.00 | not on the sample's maker fills |
| all-in round trip | 4c | 4.00 | before any move in the price |
sample E - the round trip in cents and as a share
mid = 61c
spread crossed = 2c
taker fee = 2c
all-in cost to open and close = 2 + 2 = 4c
as a share of the mid = 4 / 61 = 6.6%
on 100 contracts:
4c x 100 = 4.00 paid to trade
the price must move 4c in your favour just to break even:
from 61c, a move to 65c betters it
and 65c from 61c is 4 / 61 = 6.6% of the entry.
The break-even move
The number that matters to a reader is not the fee in isolation but the move in the price required to get it back. On the samples that move is 4c, which is 6.6% of the 61c mid. A position that is right about the direction but wrong about the cost still loses.
sample E - two positions, one correct and one just right
position A, direction right and size right:
bought at 62c, sold at 70c
gross = 8c a contract
costs = 4c
net = 4c a contract
position B, direction right, move small:
bought at 62c, sold at 64c
gross = 2c a contract
costs = 4c
net = -2c a contract, a loss
so being right is not enough; the move has to beat the cost.
Fee schedules vary by venue and often differ between makers and takers, and some venues charge on the fee only when a contract is sold rather than bought. The sample's flat 2c is illustrative; the real schedule is what a reader should read before sizing a trade.
Costing a trade before placing it
- Add the spread and the fee to the entry price to get a true cost.
- Convert that cost into the price move it takes to break even.
- Check whether your venue charges makers, takers, or both.
- Remember the spread is paid twice if you open and close.
- Compare the all-in cost with the edge you think you have, and walk away if it is smaller.
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