How do prediction market fees work?

Fees in a prediction market come in two forms you need to track separately: the taker fee (charged by the platform) and the spread (charged by the market itself). Newcomers usually see only the first and miss the second, which is often the bigger cost.

The taker fee: why it peaks at 50%

On crypto-native markets the fee is typically calculated as:

fee = shares × rate × price × (1 − price)

The term price × (1 − price) is a parabola. It is zero when price is 0 or 1, and hits its maximum of 0.25 when price is 0.50. So the fee is highest exactly where the market is most uncertain — and lowest when the outcome is nearly settled.

This is intuitive if you think about it: when everyone agrees on the outcome (price near 0 or 1), there is little new information to match, so the platform charges little. When the market is split down the middle, matching is expensive, so the fee is higher.

Makers pay nothing, sometimes earn a rebate

If you post a limit order and let someone else trade against it, you are the maker. Most venues charge makers nothing and may even pay a small rebate, because your order is what keeps the market liquid.

This is why the fee structure effectively pays a small group of market makers to be constantly present — and why “everyone is a trader” is a myth. The profitable default role is providing liquidity, which requires inventory risk and, usually, code.

The spread: the cost everyone forgets

The spread is the gap between what you can buy at and what you can sell at. If the best bid is $0.59 and the best ask is $0.61, the spread is $0.02.

On a $0.60 contract, a $0.02 spread means you lose about 3.3% of the notional the moment you enter, because you would have to sell back at $0.59. The spread is charged twice on a round trip: once entering, once exiting.

For a short-horizon trade with a small edge, the spread alone can exceed the entire expected profit.

What this means for your edge

Add the taker fee and the spread together and ask: does my probability edge exceed that combined cost? For a $0.60 contract with a 2-cent spread and a 1-cent taker fee, your round-trip cost is roughly 4–5%. If your edge is only 2 or 3 points, you are paying the market to trade.

The uncomfortable conclusion is that most manual traders in mid-priced, short-dated markets are structurally behind before they place the order. The fee curve and the spread are not friction to be ignored — they are the game.