What is implied probability?
Implied probability converts odds or market prices into the chance of an outcome according to the market price.
The short version
Implied probability is the probability embedded in a price. Odds, prediction-market contracts, and betting lines can all be converted into an implied chance of an outcome.
American odds examples
For positive odds, implied probability is 100 divided by odds plus 100. For negative odds, it is the absolute odds divided by absolute odds plus 100. So +150 is 40%, while -150 is about 60%.
Prediction markets
A contract trading at 62 cents often implies about a 62% market probability before fees and spreads. A move from 62 to 70 means the market is pricing the event as more likely.
Vig and fees
Sportsbooks include vig, and prediction markets have spreads, fees, and liquidity constraints. That means listed prices may add up to more than 100% or may not equal a pure probability.
How to use it
Compare implied probability with your own estimate. Value only exists if your probability estimate is better than the market price after costs and risk.