How to Calculate Arbitrage ROI (With Examples)
Understanding the math behind arbitrage is essential for evaluating opportunities. Here's how to calculate your actual returns and compare opportunities effectively.
The Basic Formula
Prediction market arbitrage profit is simple: if YES + NO costs less than $1, you profit the difference.
Spread = 1.00 - (YES price + NO price)
ROI = Spread ÷ Total Investment × 100
Example 1: Basic Calculation
Market: "Fed cuts rates in March 2026"
- Polymarket YES: 42¢
- Kalshi NO: 55¢
Spread: $1.00 - ($0.42 + $0.55) = $0.03
Investment: $0.42 + $0.55 = $0.97 per share pair
ROI: $0.03 ÷ $0.97 × 100 = 3.09%
Why Annualized ROI Matters
A 3% return sounds small, but it depends on when the market resolves. If you get 3% in one week, that's very different from 3% in one year.
Annualized ROI lets you compare opportunities with different timeframes on an equal basis.
Annualized ROI = ROI × (365 ÷ Days to Resolution)
Example 2: Annualized Returns
Same 3.09% spread, different timelines:
7 days to resolution:
3.09% × (365 ÷ 7) = 161% annualized
30 days to resolution:
3.09% × (365 ÷ 30) = 37.6% annualized
90 days to resolution:
3.09% × (365 ÷ 90) = 12.5% annualized
365 days to resolution:
3.09% × (365 ÷ 365) = 3.09% annualized
This is why short-duration markets are so valuable — even small spreads compound into massive annualized returns.
Factoring in Fees
Don't forget fees eat into your profits. Here's how to calculate net ROI:
$1,000 trade with 3% spread on Kalshi
- Gross profit: $30
- Entry fee: $0.01 × 1,000 = $10
- Exit fee: $0.01 × 1,000 = $10
- Net profit: $30 - $20 = $10
- Net ROI: 1% (not 3%)
Fees matter more on smaller spreads. A 3% spread becomes 1% net; a 5% spread becomes 3% net.
When is an Opportunity Worth Taking?
Here's our framework:
ArbAlert lets you set your minimum ROI threshold — we only alert you on opportunities that meet your criteria.
Real Example: Super Bowl Market
Patriots to win Super Bowl (5 days to game)
- Polymarket YES: 32¢
- Kalshi NO: 67¢
- Total cost: 99¢
- Spread: 1¢ (1.01% ROI)
- Annualized: 1.01% × (365 ÷ 5) = 73.7%
Even a tiny 1¢ spread becomes attractive when resolution is days away!
The Compounding Effect
The real power of prediction market arbitrage is capital velocity. If you can turn your capital over every week with 3% returns:
Starting capital: $1,000
Weekly return: 3%
After 52 weeks: $1,000 × (1.03)^52 = $4,651
That's a 365% annual return from "just" 3% per week.
Key Takeaways
- Always calculate annualized ROI — raw spreads are misleading
- Factor in fees — they matter more than you think
- Prioritize short-duration markets — better capital efficiency
- Set minimum thresholds — don't waste time on marginal trades
- Capital velocity matters — many small wins beat few large ones
We Do the Math for You
Every ArbAlert includes spread, ROI, and annualized return pre-calculated.
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