> For the complete documentation index, see [llms.txt](https://docs.0y.world/llms.txt). Markdown versions of documentation pages are available by appending `.md` to page URLs; this page is available as [Markdown](https://docs.0y.world/faq/lmsr.md). # LMSR How LMSR Pricing Works on 0Y — FAQ A plain-language guide to the engine behind every market. No math required. #### What is LMSR? LMSR (Logarithmic Market Scoring Rule) is the pricing machine 0Y uses to run every market. It's an automatic market maker (AMM): instead of matching you with another trader, it quotes a live price for YES and NO at all times and always takes the other side of your trade. That's how you get instant fills, even on a 1-minute market with almost nobody else trading. #### How does it decide the price? It keeps a running tally of how many YES shares and NO shares people hold, and turns that into a price. The more people lean toward one side, the higher that side's price climbs. There's a single formula doing this continuously, so there's always a price — even at the very first second of a brand-new market with zero trades. #### Why do YES and NO always add up to $1.00? Because the price *is* the market's estimate of probability, and something either happens or it doesn't. If YES is $0.70, the market thinks it's 70% likely, so NO must be the remaining 30% → $0.30. They're two halves of the same coin and always sum to $1. #### Why does buying push the price up? Buying a side tells the machine that demand for that outcome went up, so it raises that side's price and lowers the other. It's the same instinct as any market: more buyers → higher price. Your trade literally moves the odds, which is why the price feels alive. #### Why are fast markets so volatile? Fast markets (1/5/15-minute) run on a thin market so the odds react quickly and the ride feels visceral. The trade-off is that a bigger order can swing the price a lot — which is also why there's a small per-trade cap on those markets. #### Where does the money to pay winners come from? The LP funds each market up front. That's why it can always take your trade without a matching counterparty. Its risk on any single market is capped — the machine is built so the platform can never lose more than a small, known amount per market, no matter how the trade goes. #### Does the platform always win? No. On the raw pricing curve the platform can lose on a market — that's the cost of providing liquidity. It makes its money through the small fees (the 3% spread and the 10% fees on winners' profit). The displayed line is just the market's honest probability estimate. #### Are the prices random? It starts from a real-world estimate (an "oracle" — e.g. the current crypto price or a live data feed) and then moves purely based on how people trade. No one sets it by hand. #### What does "the price I see is the price I get" mean? It means you don't wait for a match and hope someone fills you at a fair number. The machine quotes a price and fills you right then. On larger orders your average price ends up slightly above the starting number because you move the market as you buy — but there's never a hidden counterparty deciding whether to fill you. #### Can I sell my position before the market ends? Yes. The same machine that priced your buy prices your sell — it works in reverse. You can cash out early to lock a gain or cut a loss (except in the last xx seconds before resolution). A small spread fees applies to the sell, since it's another trade. #### Is this the same system other prediction markets use? LMSR is a well-known, published design used across prediction markets such as Augur and Gnosis, because it guarantees a price at all times and caps the platform's risk. 0Y’s approach is that the platform is the initial market maker and adds a small liquidity fee for providing instant, always-on fills. --- # Agent Instructions This documentation is published with GitBook. GitBook is the documentation platform designed so that both humans and AI agents can read, navigate, and reason over technical content effectively. Learn more at gitbook.com. ## Querying This Documentation If you need additional information that is not directly available in this page, you can query the documentation by asking a question. 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