Order Book Basics for Prediction Markets
What an order book is
An order book is a live list of buy orders (bids) and sell orders (asks) waiting to be matched.
In many prediction markets, the order book is the market. The book determines price, liquidity, and your execution costs.
The top of book: best bid and best ask
The most important numbers are:
• Best bid: the highest price someone is willing to pay right now.
• Best ask: the lowest price someone is willing to sell at right now.
The difference between them is the bid ask spread.
Midquote: the reference price for costs
Midquote is the midpoint between best bid and best ask.
Midquote is the reference used to measure realized execution cost via effective spread.
Depth: what really matters for tradability
Top of book prices can look good but be meaningless if there is no size available.
Market depth is the quantity available at each price level.
In prediction markets, depth is often the difference between a tradable market and a market that looks tradable but is not.
How trades actually execute
Market orders
A market order executes immediately against the best available prices. In thin books, market orders can be expensive because you may fill across multiple levels and take slippage.
Limit orders
A limit order sets a maximum buy price or minimum sell price. It can reduce slippage, but it may not fill.
A limit order that crosses the spread behaves like a market order. You are only a maker if you rest in the book.
Prediction market pricing in the order book
Many prediction markets trade binary outcomes where the contract price is interpreted as implied probability.
This does not change order book mechanics, but it makes costs feel bigger because the price range is bounded.
What to focus on when deciding if a market is tradable
• Spread: is it tight or wide?
• Depth: is there enough size at the top levels?
• Recent trades: is the market active or dead?
• Stability: do quotes update regularly or are they stale?
• Fees: what will the platform charge you?
What to ignore or treat carefully
Last traded price: it can be stale and does not represent current executable prices. Use the live bid and ask.
A single tight spread print: a market can look tight for a moment with tiny size, then become wide again.
Screenshots: for analysis you need timestamps and fills, not a static image.
Costs you can measure from the order book
Two key measures:
• Quoted spread: ask minus bid.
• Effective spread: realized cost from fills relative to midquote.
Then add trading fees to get all in cost.
Practical takeaway
If you want to trade prediction markets seriously, learn to read the order book. The book tells you what you can actually buy or sell, and it determines whether your edge survives costs.
Related
• Effective Spread vs Quoted Spread: What's the Difference
• Slippage in Thin Markets: Causes and How to Reduce It
• Bid
• Ask