Concept · liquidity-and-trading
Semantic Tick Size
Quick definition. The minimum price increment in a prediction market that doubles as a narrative unit. Because contracts resolve at $0 or $1, each one-cent move is universally read as a one-percentage-point probability revision · making microstructure noise appear informative. Coined by @allquantor.
Key insights
- @allquantor's source data: 600 million Polymarket orderbook datapoints. Headline finding: ~70% of one-cent price moves do not continue in the same direction · most penny moves are noise that gets reinterpreted as signal because the price is a probability.
- The implication is a contrarian fade strategy: systematically fade penny moves on PMs and you harvest the overreaction.
- The piece situates this against Paul Tetlock's TradeSports microstructure research: passive limit-order walls slow price discovery while impatient market orders amplify short-term noise. PMs amplify this dynamic because every penny carries narrative weight.
- functionSPACE V1: the $0.01 tick size compounds liquidity fragmentation by adding a rounding tax that makes low-probability contracts structurally imprecise. A contract that "should" trade at 0.3% can only be quoted at 0% or 1%, both of which are wrong.
- The combined effect: penny ticks are simultaneously too large for low-probability contracts (rounding tax) and too small for mid-probability contracts (noise gets narrativized).
- Implicit design implication: prediction markets may benefit from probability-aware variable tick sizes · finer granularity in the tails, coarser in the middle.
In their words
70% of one-cent price moves do not continue in the same direction.· @allquantor
Each penny reads as a one-percentage-point probability change, creating overreactions that a contrarian fade strategy can profitably harvest.· @allquantor
The $0.01 tick size... creates a rounding tax that makes low-probability contracts structurally imprecise.· functionSPACE
Where it matters
Semantic tick size is one of those concepts that, once named, becomes hard to unsee. It explains why CNN/WSJ headlines about "Polymarket probability of X jumped 4 points" can be entirely noise, why MMs can profitably fade headline moves, and why every continuous-distribution / multi-outcome design proposal is partially motivated by escaping the penny's narrative weight. It's also a structural reason PM prices are not directly equal to true probabilities · they're heavily perturbed by microstructure with a probability-shaped projection.
Connections
- Bid-ask spread · penny ticks bound how tight spreads can be.
- Price discovery · tick size shapes how price discovery looks at high frequency.
- Liquidity fragmentation · the rounding tax compounds across many fragmented contracts.
- Binary contracts / multi-outcome markets · the structural environment.
- Calibration · semantic tick noise pushes prices away from calibrated probabilities.
Platforms linked to this concept
- Polymarket · implements · Mentioned in Semantic Tick Size content as an implementing platform
Related concepts
- Bid-Ask Spread
- Price Discovery
- Liquidity Fragmentation
- Binary Contracts
- Multi-Outcome Markets
- Calibration
Sources
- Binary Events: What Happens When You Split One Market Into Twenty · functionSPACE · Apr 2, 2026
- Prediction Markets Have a Semantic Tick Size · allquantor · Mar 19, 2026