In this guide
Trading in prediction markets requires familiarity with terminology spanning finance, mathematics, and distributed ledger systems. This glossary defines 64 critical terms that every prediction market participant should grasp — covering order mechanics, statistical concepts, blockchain infrastructure, and forecasting methodologies.
Core Trading Terms
- Ask (Offer)
- The minimum price at which a seller will part with shares. When you purchase at market rates, you transact at the ask price.
- Bid
- The maximum price a buyer will commit to for shares. When you liquidate at market rates, you receive the bid price.
- Bid-Ask Spread
- The gap separating the best bid from the best ask. Narrower spreads indicate deeper liquidity and reduced transaction expenses.
- CLOB (Central Limit Order Book)
- The order-matching engine deployed by Polymarket and PolyGram. It pairs resting buy and sell orders according to price level and temporal sequence.
- Conditional Token
- The blockchain-native asset representing a YES or NO position in a prediction market. These live within smart contracts 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 execution.
- FOK (Fill or Kill)
- An order instruction requiring immediate full execution or automatic cancellation. Partial completion is not permitted.
- Liquidity
- The capacity to transact shares without moving the market substantially. Markets with elevated volume and compressed spreads exhibit superior liquidity.
- Market Order
- An instruction to transact at the prevailing best price. Settlement occurs instantly but at whatever terms the market currently provides.
- Limit Order
- An instruction to transact exclusively at a designated price threshold or more favourably. The order waits in the book until a counterparty is found or it is withdrawn.
- Open Interest
- The aggregate notional value of all active, unsettled positions across a market. Elevated open interest signals robust participation and depth.
- Slippage
- The variance between anticipated execution price and actual settlement price, stemming from inadequate liquidity at your target level.
Probability & Statistics Terms
- Brier Score
- A metric quantifying forecast precision. Smaller values denote superior accuracy. Derived from the mean squared deviation between your probability estimate and the realised outcome (0 or 1).
- Calibration
- An assessment of alignment between your stated confidence levels and empirical frequency of correct predictions. Excellent calibration means forecasts assigned 70% likelihood materialise roughly 70% of the time.
- Expected Value (EV)
- The anticipated return when considering all scenarios weighted by their respective likelihoods. Positive EV indicates a wager with favourable long-run economics.
- Kelly Criterion
- A mathematical framework for determining optimal stake allocation: f = (bp - q) / b, where b = net odds, p = probability, q = 1-p.
- Superforecaster
- A participant demonstrating persistently superior calibration across numerous forecasts, consistent with Philip Tetlock's academic framework.
Blockchain & Settlement Terms
- Polygon
- The Layer 2 chain hosting Polymarket and PolyGram operations. It delivers transaction costs under one cent and achieves finality in roughly two seconds.
- USDC (USD Coin)
- The dollar-pegged digital asset utilised for prediction market payouts. One unit equals one US dollar, issued by Circle with backing from US government debt instruments.
- Smart Contract
- Autonomous blockchain-resident software that custodies prediction market capital and automatically distributes winnings upon market conclusion.
- Oracle
- An authoritative information provider that communicates real-world event outcomes to blockchain protocols. Polymarket relies on UMA's optimistic oracle mechanism for final determination.
- Gas
- The cost imposed by Polygon validators for transaction processing. On Polygon, this typically falls below $0.01 per transaction.
Market Types
- Binary Market
- A market structure featuring precisely two potential resolutions (YES/NO). This represents the predominant prediction market architecture.
- Categorical Market
- A market structure permitting three or more distinct outcomes (e.g., "Which candidate will secure the Republican nomination in 2028?").
- Scalar Market
- A market where payoff magnitude corresponds to the realised outcome value (e.g., "What will the Bitcoin price reach by year-end?").
- Conditional Market
- A market whose resolution hinges upon 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 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 floating price reflecting an underlying asset. A prediction market delivers a fixed $0 or $1 payout contingent on whether an event materialises.
- What does it mean when a market is "resolved YES"?
- The specified outcome has occurred, and YES holders receive $1 per share. NO holders receive nothing. The blockchain executes settlement automatically.