Understanding Prices

Cupdiction prices shares using LMSR — a mathematical model that automatically sets prices based on how much YES and NO has been bought.

The key insight: price = probability

A YES share price of 42¢ means the market believes there is approximately a 42% chance the event happens.

This is not set by anyone — it emerges from real trading. When more people buy YES, the price rises. When more people buy NO, the YES price falls.

LMSR explained simply

LMSR (Logarithmic Market Scoring Rule) is the pricing formula Cupdiction uses.

You don’t need to understand the math. Here’s what matters:

• Buying YES makes YES more expensive and NO cheaper
• Buying NO makes NO more expensive and YES cheaper
• YES + NO prices always sum to approximately 100¢
• The market maker (LMSR) always has liquidity — there’s always someone to trade against

What determines your profit

Your profit depends on two things:

1. The price you bought at — lower is better for YES buyers
2. Whether you’re right — your shares pay $1.00 if your side wins

Formula:

Profit = (1.00 - buy_price) × shares   if your side wins
Loss   = buy_price × shares             if your side loses

Example:

• You buy 20 YES shares at 40¢ each
• Cost: 20 × 0.40 = $8.00
• If YES wins: 20 × $1.00 = $20.00 → profit: $12.00 (+150%)
• If NO wins: loss of $8.00 (-100%)

Average fill price vs displayed price

For large orders, your actual fill price will be higher than the displayed price. This is slippage — the price moves against you as your order fills.

The trade panel always shows your average fill price before you confirm.

Payout multiplier (odds)

You can think of share prices in terms of payout multiplier:

Multiplier = $1.00 / price

A market at 10¢ is saying the event is unlikely — but if you’re right, you win 10× your stake.

Why doesn’t YES + NO always equal exactly 100¢?

Due to LMSR pricing mechanics and rounding, the displayed prices may show e.g. 52¢ + 49¢ = 101¢ or 51¢ + 50¢ = 101¢. This is normal and reflects the market maker’s spread. The actual pricing formula is internally consistent and pays exactly $1.00 to winners.