All termsProbability, Pricing and Expected ValueWorth knowing
Margin of Safety
In prediction market trading, a margin of safety is the buffer a trader requires between the market price and their estimated fair value before considering a trade attractive.
Why it matters to you
Suppose: Your estimate: 61% Market: 59% Technically, you believe the market is slightly underpriced. But your probability estimate is uncertain. Fees and execution costs may also exist. A trader may therefore require a larger difference before acting. For example: Your estimate: 65% Market: 50% The larger gap provides more room for estimation error.
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