Why does the sum of Yes and No price on certain events above 100?

Why does the sum of Yes and No price on certain events above 100?

If you're wondering why the sum of yes and no price on any event goes above 100, then you're at the right place.

The phenomenon you're describing is called a "market spread". In the context of TradeX, this spread indicates the difference between the buy (YES) and sell (NO) prices of a specific event. The sum total of YES and NO shares is intended to reflect the collective opinion of the users on the platform regarding the outcome of the event, which should ideally be 100 (representing 100% probability).

However, when the total exceeds 100, this is due to the platform adjusting for low liquidity in the market. Liquidity refers to how easily assets (in this case, shares of YES or NO) can be bought or sold without causing a significant change in their prices.

In highly liquid markets, assets can be easily bought or sold with little to no impact on their prices. This is reflected in narrow spreads, where the sum of YES and NO is closer to 100. But in less liquid markets, buying or selling assets can lead to significant price changes. This is reflected in wider spreads, where the sum of YES and NO exceeds 100.

The reason behind this mechanism is to ensure the market operates smoothly, even during periods of low activity. By allowing the spread to widen, the platform encourages more trading by offering potentially more profitable opportunities. This mechanism, in turn, helps maintain market stability and keeps the market active, even in periods of low liquidity.

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