What can and cannot be lost on an event contract

The property that most cleanly defines an event contract is what it cannot do: it cannot lose more than the price paid for it. There is no leverage, no margin call and no multiplying stake. The gain is fixed as well, so the shape of the trade is a bounded loss against a bounded gain.

Desk spec

position: 100 contracts
price: 62c
at risk: 62.00
most to gain: 38.00

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 answer

On an event contract the most that can be lost is the price paid for the position. On the samples 100 contracts at 62c put 62.00 at risk and can win at most 38.00, because no contract can pay less than 0.00 or more than 1.00. There is no leverage, no margin call and no stake that can be multiplied.

A bounded loss and a bounded gain

Both ends of the trade are fixed by the payout range. A contract is worth between 0.00 and 1.00 at settlement, so the buyer's loss cannot exceed what was paid and the gain cannot exceed the distance to 1.00.

Sample F - 100 contracts at 62c, both extremes
Scenario	Contract worth	On 100 contracts	Against 62.00 paid
all resolve yes	1.00	100.00	+38.00
all resolve no	0.00	0.00	-62.00
a half of them resolve yes	0.50	50.00	-12.00
voided and refunded	0.62	62.00	0.00
the range	0.00-1.00	0.00-100.00	-62.00 to +38.00

sample F - the two ends of the position contracts = 100 price paid = 0.62 each capital committed = 100 x 0.62 = 62.00 if every contract resolves yes: received = 100 x 1.00 = 100.00 gain = 100.00 - 62.00 = +38.00 if every contract resolves no: received = 100 x 0.00 = 0.00 loss = 0.00 - 62.00 = -62.00 ratio of most-lost to most-gained = 62.00 / 38.00 = 1.63 so the downside is larger than the upside at 62c, which is exactly what a 62% chance implies.

What this property is worth

A bounded loss is not a small loss. Losing 62.00 of a 62.00 position is the whole position, and the samples' 62% chance means the market expects that outcome 38% of the time. The value of the property is narrower and more precise: the reader can never be surprised by a call for more money, because there is no mechanism that can create one.

sample H - the same bound, spread across a book position of 100 contracts at 62c = 62.00 committed if the market's own 62.4% is right: expected received = 0.624 x 100.00 = 62.40 expected net = 62.40 - 62.00 = +0.40 before the spread and fee of samples B and C costs on 100 contracts = 4.00 expected net after costs = 0.40 - 4.00 = -3.60 so a position priced exactly at the market's own probability still loses the cost of trading it, and the bound on that loss is still only the 62.00 paid.

The payout range on the samples is 0.00 to 1.00. Some venues list contracts with a different payout, and a reader should check the payout amount in the contract's own rules, because it is that amount, not an assumption of 1.00, that bounds the loss.

Sizing a position by what it can lose

Multiply the price by the number of contracts to get the money truly at risk.
Treat the whole of that number as losable, because it is.
Check the payout per contract, since it bounds both ends of the trade.
Compare the most-lost to the most-gained before deciding the price is attractive.
Do not add leverage or borrowing to a position whose loss is already the full amount paid.

What can and cannot be lost on an event contract

A bounded loss and a bounded gain

What this property is worth

Read next