Breakeven Probability
Definition
The breakeven probability of an event contract is the probability of winning at which a trade's expected profit is zero. For a yes contract paying $1, it equals the price plus the fee per contract. A trader should buy only if their estimated probability is higher than the breakeven, and should sell or buy the other side if it is lower.
Why it matters
Breakeven turns a fee schedule into a decision rule: the trader's probability must beat it. It also shows where trading is least favorable: small orders in cheap contracts, where rounding, spreads and the favorite-longshot pattern stack up. Investors should calculate it for their actual size and price before trading.
Common misconceptions
- •Breakeven is not the displayed price.
- •Fees in cents matter most for contracts priced in cents.
- •A round trip costs two fees plus the spread.
- •The label is only a starting point. Investor outcomes usually depend on the governing documents, cash-flow priority, valuation policy, disclosure quality, and manager discretion surrounding the term, not just the shorthand definition used in marketing materials.
Technical details
Formula
Breakeven = (price x contracts + fee) / (payout x contracts).
Kalshi standard fee: 0.07 x C x P x (1 - P), rounded up to the cent.
Polymarket taker fee: C x feeRate x P x (1 - P), with category rates from 0 to 0.07; makers pay nothing.
Worked examples (illustrative)
1 contract at $0.50 on Kalshi: fee $0.02 (0.0175 rounded up); breakeven 52%.
100 contracts at $0.50: fee $1.75; breakeven 51.75%.
1 contract at $0.10: fee $0.01; breakeven 11%.
100 contracts at $0.10: fee $0.63; breakeven 10.63%.
How investors apply the term
Investors usually apply this term by tying the definition back to the controlling documents and then asking which cash flows, rights, restrictions, or valuation assumptions it changes. A useful review looks at the term alongside fees, leverage, liquidity, reporting frequency, and manager discretion rather than treating it as a standalone concept.
The practical diligence test is simple: identify who benefits if the assumption is wrong, who has control when conditions change, and what evidence the investor receives after closing. Terms that cannot be reconciled to documents, cash movements, and monitoring data should be treated as marketing shorthand until proven otherwise.
Frequently asked questions
- What probability do I need to break even after trading fees?
- The price plus the fee per contract, as a share of the $1 payout. Buying 100 contracts at 62 cents on Kalshi's standard schedule costs $63.65 in total, so the breakeven probability is 63.65%.
- Why does breakeven rise so much for cheap contracts?
- Because fees are rounded up. Kalshi's fee rounds up to the cent, and AltStreet's study notes that small orders in low-priced contracts face a large relative burden. One contract at 10 cents carries a $0.01 fee, so breakeven is 11%, ten percent above the price; 100 contracts at 10 cents carry $0.63, for a breakeven of 10.63%.
- Do I need to count the exit as well?
- If you plan to sell before settlement, yes. Each trade incurs its fee, so a round trip needs the price to move by more than both fees and the spread before it profits.