Logit Space and Prediction Markets

Why bounded prices break normal analytics

Prediction market prices are probabilities bounded between 0 and 100. A stock can double; a 95¢ contract cannot. Equal cent moves therefore do not represent equal information: a move from 50¢ to 55¢ is a modest update, while 90¢ to 95¢ halves the remaining uncertainty.

What logit space is

Logit space converts probability into log-odds: ln(p / (1 − p)). In this space, moves become comparable across price levels — the 90→95 move correctly registers as a much larger update than 50→55. Most of the statistics on this site (overextension, volatility, reversion) are computed on logit changes, not raw cents.

How Logit Terminal uses it

Each market's recent logit move is standardized against its own history to produce the overextension score, hourly logit changes power the volatility metrics, and reversion follow-through measures logit retracement after unusual moves.

Limitations

Logit math does not remove market microstructure noise, thin books, or stale quotes. Prices are clamped to 1–99¢ before transformation, and scores carry confidence labels because a clean formula on weak data is still weak evidence.

Volatility in Prediction Markets · Mean Reversion in Prediction Markets · Methodology · Dashboard