In this guide
Trading in prediction markets requires familiarity with terminology spanning finance, quantitative methods, and distributed ledger systems. This glossary presents 64 core terms that every prediction market participant should grasp — covering everything from execution mechanics and position management through cryptographic infrastructure and probabilistic reasoning.
Core Trading Terms
- Ask (Offer)
- The minimum price at which a seller agrees to part with shares. When you acquire at prevailing market rates, you transact at the ask.
- Bid
- The maximum price a purchaser will commit to pay for shares. Upon selling at prevailing market rates, you obtain the bid.
- Bid-Ask Spread
- The gap separating the lowest ask from the highest bid. Narrower spreads indicate superior market depth and reduced friction costs.
- CLOB (Central Limit Order Book)
- The order-matching engine deployed by Polymarket and PolyGram. It pairs incoming buy orders with resting sell orders according to price and temporal sequence.
- Conditional Token
- The blockchain-native representation of a YES or NO position within a prediction market. These instruments reside as code within smart contracts on Polygon.
- Fill Price
- The rate at which your transaction ultimately settles. This may diverge from the quoted rate if market conditions shift between submission and completion.
- FOK (Fill or Kill)
- An instruction type requiring complete, immediate execution or automatic cancellation. Fractional completion is not permitted.
- Liquidity
- The capacity to transact large volumes without materially moving the price. Markets featuring substantial volume and compressed spreads deliver superior liquidity.
- Market Order
- A directive to transact at the most competitive available rate right now. Execution is instantaneous, though the precise rate depends on current supply and demand.
- Limit Order
- A directive to transact exclusively at a designated rate or more favourably. The instruction waits in the book for a matching counterparty or withdrawal.
- Open Interest
- The aggregate notional value of all active, unresolved positions. Greater open interest signals elevated participation and available depth.
- Slippage
- The shortfall between your anticipated execution rate and the actual rate received, stemming from inadequate counterparty availability at your target level.
Probability & Statistics Terms
- Brier Score
- A metric quantifying forecast precision. Smaller values denote superior performance. Computation involves averaging the squared deviations between your stated likelihood and the realised outcome (either 0 or 1).
- Calibration
- A measure reflecting the alignment between your stated probabilities and empirical frequencies. Excellent calibration means that claims made with 70% confidence materialise roughly 70% of the time.
- Expected Value (EV)
- The mean result across all conceivable scenarios, each weighted by its likelihood. Positive EV indicates a wager with favourable long-run economics.
- Kelly Criterion
- A mathematical framework for determining ideal stake magnitude: f = (bp - q) / b, where b denotes net odds, p denotes likelihood, and q denotes 1-p.
- Superforecaster
- A participant demonstrating persistently superior calibration across numerous predictions, consistent with Philip Tetlock's scholarly findings.
Blockchain & Settlement Terms
- Polygon
- The Layer 2 scaling solution supporting Polymarket and PolyGram operations. It provides transaction costs measured in fractions of a cent and settlement confirmation within roughly 2 seconds.
- USDC (USD Coin)
- The dollar-pegged digital asset utilised for prediction market settlement. One unit maintains equivalence to one US dollar, with issuance managed by Circle and reserves held in US government obligations.
- Smart Contract
- Autonomous programmes residing on the blockchain that custody prediction market capital and execute payouts automatically upon market conclusion.
- Oracle
- An authoritative information provider that communicates real-world event outcomes to blockchain programmes. Polymarket leverages UMA's optimistic oracle mechanism for market finalisation.
- Gas
- The compensation paid to Polygon network participants for handling a transaction. On Polygon, this typically costs under one cent per operation.
Market Types
- Binary Market
- A market structure permitting precisely two possible resolutions (YES/NO). This represents the predominant prediction market configuration.
- Categorical Market
- A market structure accommodating three or more distinct outcomes (for instance, "Which party will capture the 2028 Republican nomination?").
- Scalar Market
- A market structure where compensation varies proportionally with the outcome's numerical value (such as "What will Bitcoin's price reach on the final day of the year?").
- Conditional Market
- A market structure that finalises exclusively if a prerequisite event materialises. The market becomes void should the prerequisite fail 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 vocabulary.
- What is the difference between a prediction market and a futures contract?
- A futures contract maintains a continuously-quoted price reflecting an underlying asset's value. A prediction market delivers a fixed $0 or $1 settlement contingent upon whether a specified event transpires.
- What does it mean when a market is "resolved YES"?
- The underlying event has occurred, causing YES positions to settle at $1 per share. NO positions settle at $0. The blockchain automatically executes the distribution.