How Are Prices Calculated?

The Automated Market Maker (AMM)

OddsForge uses an Automated Market Maker (AMM) to determine the price of shares in every prediction market. Unlike traditional exchanges that rely on an order book with buyers and sellers placing limit orders, the AMM uses a mathematical formula to set prices automatically. This means you can always buy or sell shares instantly — there's no need to wait for a counterparty.

The AMM is powered by a liquidity pool that holds reserves of both Yes and No shares. Every time you make a trade, the pool rebalances and the price updates in real time to reflect the new probability implied by the market.

Price = Probability

On OddsForge, the price of a share directly represents the market's estimated probability of that outcome occurring. If a Yes share is priced at $0.65, the market collectively believes there is a 65% chance the event will happen.

When a market resolves, winning shares pay out $1.00 each and losing shares become worth $0.00. So if you buy a Yes share at $0.65 and the event occurs, you earn a profit of $0.35 per share.

The Constant Product Formula

OddsForge uses the Constant Product Market Maker (CPMM) model, the same proven formula used by leading decentralized exchanges. The core equation is:

x × y = k

Where:

• x = the number of Yes shares in the liquidity pool
• y = the number of No shares in the liquidity pool
• k = a constant value that remains unchanged after each trade

When you buy Yes shares, you remove Yes shares from the pool and add No shares. The pool must maintain the same product k, so the price of Yes shares increases (they've become scarcer) and the price of No shares decreases.

A Worked Example

Suppose a market starts with 1,000 Yes shares and 1,000 No shares in the pool. The constant product is:

k = 1,000 × 1,000 = 1,000,000

At this point the price of a Yes share is $0.50 (50% probability) because the reserves are equal.

Now imagine you want to buy 100 Yes shares. After the trade, the pool needs to maintain k = 1,000,000:

• Yes shares remaining: 1,000 − 100 = 900
• No shares needed: 1,000,000 ÷ 900 ≈ 1,111
• You deposit approximately 111 No-equivalent value into the pool

After the trade, the new price of Yes becomes approximately $0.55 (900 / (900 + 1,111) ≈ 55%), reflecting the increased demand for that outcome.

Slippage and Large Trades

Because the AMM uses a curve rather than a fixed price, larger trades move the price more. This price movement is known as slippage. A small trade may shift the price by a fraction of a cent, while a very large trade could move it several percentage points.

Before you confirm a trade, OddsForge displays:

• The average price you'll pay per share
• The estimated slippage (how much the price will move)
• The total cost of the trade

Why This Model Works

The Constant Product formula has several advantages for prediction markets:

• Always available: You can trade at any time without waiting for a counterparty.
• Self-correcting: Prices automatically adjust to reflect market sentiment. If a price is "wrong," traders profit by correcting it.
• Transparent: The formula is deterministic and runs entirely on-chain in the OddsForgeV2 smart contract, so anyone can verify prices independently.
• Proven: The same model secures billions of dollars across DeFi protocols like Uniswap.