How to read a prediction market orderbook
The orderbook is a live list of every outstanding buy and sell order in a market. Reading it before you trade tells you the true cost of entering and exiting a position, whether the market has enough depth to absorb your order, and sometimes what other large traders are signaling.
How to read a prediction market orderbook
The basics: bid, ask, and spread
The orderbook is divided into two sides. The bid side lists every outstanding buy order, sorted from highest (best bid) to lowest. The ask side lists every outstanding sell order, sorted from lowest (best ask) to highest. The best bid is the most a buyer will currently pay; the best ask is the least a seller will currently accept. The spread is the gap between them. On a liquid Kalshi or Polymarket market, the spread on a YES contract might be one or two cents. On a thin market, it can be five cents or more, which means the round-trip cost of trading is immediately high.
Order depth: how far does it go?
Beyond the best bid and ask, each price level has a quantity: the total number of shares available at that price. A "thick" orderbook has thousands of shares available within a penny or two of the current mid-price; a "thin" book might show only 50 shares at the best bid before the next level drops by five cents. Depth matters when you want to trade size. If you try to buy 2,000 shares and only 200 are available at the best ask, your order will "walk the book," filling at progressively worse prices until it is complete or you cancel.
Reading conviction from order size
Large orders sitting close to the current price can signal conviction from a well-capitalized trader, or they can be spoofed orders placed to signal false interest and then cancelled before they fill. In genuine cases, a 10,000-share bid sitting two cents below the mid-price suggests a trader who believes the price will not fall much further and is willing to absorb a large sell. Thin books with no standing orders outside the best bid/ask signal low trader interest and wide uncertainty about value.
Placing orders: market vs limit
A market order executes immediately at the best available price, which means it will cross the spread and potentially walk the book if size is large. A limit order lets you specify the exact price you are willing to pay or receive; it will not fill until another trader meets your price. In prediction markets with moderate spreads, limit orders save money: instead of paying the full ask, you can post a bid one cent below the ask and often get filled within minutes as another trader crosses to your side. The trade-off is that your order may not fill at all if the price moves away from you before a match occurs.
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