In this guide
Trading in prediction markets requires familiarity with terminology spanning finance, mathematics, and distributed ledger systems. This glossary presents 64 critical terms that every prediction market participant should grasp — covering everything from execution mechanisms and position management through cryptographic infrastructure and probabilistic assessment methods.
Core Trading Terms
- Ask (Offer)
- The minimum price at which a seller agrees to part with shares. When you acquire shares at prevailing rates, you transact at the ask level.
- Bid
- The maximum price a prospective buyer will commit to for shares. When you dispose of shares at prevailing rates, you receive the bid level.
- Bid-Ask Spread
- The gap separating the highest bid from the lowest ask. Narrower spreads signal deeper liquidity and reduced transaction friction.
- CLOB (Central Limit Order Book)
- The order-matching infrastructure deployed by Polymarket and PolyGram. Pairs incoming buy and sell orders according to price levels and temporal sequence.
- Conditional Token
- The blockchain-native manifestation of a YES or NO stake in a prediction market. These assets reside within smart contracts deployed on Polygon.
- Fill Price
- The precise rate at which your transaction was completed. This may diverge from the quoted rate if market conditions shift between submission and settlement.
- FOK (Fill or Kill)
- An instruction type requiring complete execution at once or automatic cancellation. Fractional completion is not permitted.
- Liquidity
- The capacity to transact substantial volumes without materially moving the quoted price. Markets with elevated volume and compressed spreads demonstrate superior liquidity characteristics.
- Market Order
- An instruction to transact immediately at whatever price the market currently quotes. Execution is prompt, though the precise rate is determined by available counterparties.
- Limit Order
- An instruction to transact solely at your specified price threshold or more favourably. The instruction waits in the order book for a matching counterparty or until withdrawn.
- Open Interest
- The aggregate monetary value of all active unresolved positions across a market. Elevated open interest correlates with stronger trading depth and price discovery.
- Slippage
- The variance between your anticipated execution price and the actual rate received, stemming from inadequate depth at your target level.
Probability & Statistics Terms
- Brier Score
- A metric quantifying forecasting precision. Smaller values indicate superior accuracy. Computation involves the mean squared deviation between your stated likelihood and the realised outcome (either 0 or 1).
- Calibration
- The degree to which your stated confidence levels correspond to empirical frequencies. Excellent calibration means forecasts assigned 70% confidence materialise roughly 70% of the time.
- Expected Value (EV)
- The probability-weighted average result across all conceivable scenarios. A positive EV indicates a position that generates returns when repeated across many instances.
- Kelly Criterion
- A sizing algorithm for determining optimal stake magnitudes: f = (bp - q) / b, where b represents net odds, p denotes likelihood, and q equals 1-p.
- Superforecaster
- A participant demonstrating measurably superior calibration across numerous forecasts, as identified within Philip Tetlock's scholarly investigations.
Blockchain & Settlement Terms
- Polygon
- The Layer 2 settlement layer supporting Polymarket and PolyGram operations. Delivers transaction costs under one cent and achieves finality within approximately two seconds.
- USDC (USD Coin)
- The dollar-pegged digital asset utilised for prediction market settlement. Each unit maintains parity with the US dollar, with issuance managed by Circle and reserves held in Treasury instruments.
- Smart Contract
- Autonomous programmes resident on the blockchain that custody prediction market capital and execute payout distributions upon market conclusion.
- Oracle
- An authoritative information provider that communicates real-world event outcomes to blockchain programmes. Polymarket employs UMA's optimistic oracle methodology for market settlement.
- Gas
- The compensation transferred to Polygon network validators for transaction processing. Polygon charges typically remain beneath $0.01 per operation.
Market Types
- Binary Market
- A market structure permitting precisely two possible resolutions (YES/NO). This represents the predominant prediction market architecture.
- Categorical Market
- A market structure accommodating three or more distinct resolutions (for instance, "Which candidate will secure the Republican nomination in 2028?").
- Scalar Market
- A market where payoffs adjust proportionally with the outcome magnitude (such as, "At what level will BTC trade on the final day of the year?").
- Conditional Market
- A market that settles exclusively upon satisfaction of a prerequisite condition. The market becomes void should the prerequisite fail to materialise.
FAQ
- Where can I learn more prediction market terminology?
- PolyGram's API documentation provides comprehensive technical definitions. Polymarket's support resources address consumer-oriented language.
- What is the difference between a prediction market and a futures contract?
- A futures contract maintains a dynamic price reflecting an underlying asset's value. A prediction market delivers a fixed $0 or $1 settlement contingent on whether an event materialises.
- What does it mean when a market is "resolved YES"?
- The forecasted event transpired, resulting in YES shares yielding $1 per unit. NO shares yield $0 per unit. Payout distribution occurs automatically through blockchain execution.