In this guide
Trading in prediction markets requires fluency in a specialised lexicon spanning finance, statistical methods, and distributed ledger systems. This glossary presents 64 core terms that every prediction market participant should grasp — covering everything from execution mechanisms and portfolio protection through to cryptographic infrastructure and probability assessment frameworks.
Core Trading Terms
- Ask (Offer)
- The minimum price at which a seller will part with shares. This is the price you encounter when purchasing at prevailing market rates.
- Bid
- The maximum price a buyer will commit to for shares. This is what you obtain when liquidating your position at market rates.
- Bid-Ask Spread
- The gap separating the lowest ask from the highest bid. Narrower spreads signal deeper liquidity and reduced transaction friction.
- CLOB (Central Limit Order Book)
- The matching engine deployed by Polymarket and PolyGram. It pairs incoming buy and sell orders according to price levels and temporal sequence.
- Conditional Token
- An on-chain asset representing a YES or NO position in a prediction market. These tokens live within smart contracts deployed on Polygon.
- Fill Price
- The precise rate at which your transaction was completed. This often diverges from the quoted rate if market conditions shift between submission and settlement.
- FOK (Fill or Kill)
- An order instruction requiring immediate full execution or automatic cancellation. Fractional completion is not permitted.
- Liquidity
- The capacity to transact in volume without materially moving the price. Markets featuring substantial turnover and compressed spreads exhibit superior liquidity.
- Market Order
- A directive to transact at whatever price is currently obtainable. It settles straight away but at the prevailing market rate.
- Limit Order
- A directive to transact solely at a target price or more favourably. It waits in the order book for a matching counterparty or withdrawal.
- Open Interest
- The aggregate notional value of all active unresolved positions across a market. Elevated open interest correlates with heightened engagement and depth.
- Slippage
- The shortfall between your anticipated execution price and the actual fill price, stemming from inadequate depth at your target level.
Probability & Statistics Terms
- Brier Score
- A metric quantifying forecast precision. Smaller values indicate superior accuracy. Computed as the average of squared deviations between your assigned probability and the realised outcome (either 0 or 1).
- Calibration
- A gauge of alignment between your probability assignments and empirical frequencies. Excellent calibration means that events you assess at 70% confidence materialise roughly 70% of the time.
- Expected Value (EV)
- The long-run average return when weighting all feasible results by their likelihood. Positive EV indicates a wager with profitable characteristics over repeated trials.
- Kelly Criterion
- A mathematical framework for determining stake magnitude: f = (bp - q) / b, where b denotes net odds, p signifies probability, and q equals 1-p.
- Superforecaster
- A participant demonstrating persistently superior calibration across numerous forecasts, as documented in work by Philip Tetlock.
Blockchain & Settlement Terms
- Polygon
- The Layer 2 scaling solution underpinning Polymarket and PolyGram. It delivers transaction costs below one cent and achieves settlement finality in roughly two seconds.
- USDC (USD Coin)
- The dollar-pegged digital asset employed for prediction market settlement. One unit equals one US dollar and is issued by Circle with backing from US government debt instruments.
- Smart Contract
- Autonomous code residing on the blockchain that safeguards market capital and orchestrates automatic payout distribution upon market conclusion.
- Oracle
- An authoritative information provider that furnishes verified real-world data to smart contracts. Polymarket relies on UMA's optimistic oracle mechanism for market resolution.
- Gas
- The compensation paid to Polygon network validators for transaction processing. On Polygon, this typically costs under $0.01 per operation.
Market Types
- Binary Market
- A market structure offering precisely two possible resolutions (YES/NO). This remains the predominant prediction market architecture.
- Categorical Market
- A market structure permitting three or more distinct outcomes (such as "Which candidate will secure the Republican nomination in 2028?").
- Scalar Market
- A market where payouts adjust proportionally to the outcome magnitude (for instance, "At what price will BTC trade on December 31?").
- Conditional Market
- A market whose resolution hinges on a prerequisite event materialising. The market becomes void if that condition fails to occur.
FAQ
- Where can I learn more prediction market terminology?
- PolyGram's API documentation furnishes comprehensive technical definitions. Polymarket's support portal addresses user-oriented vocabulary.
- 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 specified event transpired, causing YES shares to yield $1 each. NO shares yield $0. Payout occurs instantaneously through automated smart contract execution.