In this guide
Trading in prediction markets requires familiarity with terminology spanning finance, statistical analysis, and distributed ledger systems. This comprehensive 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 forecasting methodologies.
Core Trading Terms
- Ask (Offer)
- The minimum price a seller demands to part with their shares. When you purchase at prevailing market rates, you transact at this ask level.
- Bid
- The maximum price a buyer will commit to acquire shares. When you liquidate your position at market rates, you receive the bid quotation.
- Bid-Ask Spread
- The gap separating the lowest ask from the highest bid. Narrower spreads indicate superior market depth and reduced transaction friction.
- CLOB (Central Limit Order Book)
- The matching engine powering Polymarket and PolyGram. This system pairs waiting sell orders with waiting buy orders according to price precedence and temporal sequence.
- Conditional Token
- The blockchain-native instrument representing a YES or NO position within a prediction market. These assets reside within smart contract architecture on Polygon.
- Fill Price
- The precise rate at which your transaction completed. 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 substantial volumes without materially moving the price. Markets exhibiting high volume and compressed spreads demonstrate superior liquidity characteristics.
- Market Order
- An instruction to transact immediately at whatever price the market currently offers. Settlement happens straight away, though at the prevailing rate.
- Limit Order
- An instruction to transact exclusively at your specified price threshold or more favourably. The order waits in the book until a matching counterparty appears or you withdraw it.
- Open Interest
- The aggregate notional value of all active unresolved positions across a market. Elevated open interest signals robust trading participation and market depth.
- Slippage
- The variance between your anticipated execution price and the actual rate you received, stemming from inadequate supply at your target price point.
Probability & Statistics Terms
- Brier Score
- A metric quantifying forecasting precision. Smaller numbers denote superior performance. Computation involves averaging the squared deviations between your stated likelihood and the eventual outcome (either 0 or 1).
- Calibration
- The alignment between your stated confidence levels and empirical frequencies of correct predictions. Excellent calibration means assertions made at 70% confidence materialise approximately 70% of the time.
- Expected Value (EV)
- The probability-weighted average payoff across all conceivable scenarios. Positive EV indicates a wager that generates profits when repeated across numerous instances.
- Kelly Criterion
- A mathematical framework for determining ideal stake magnitude: f = (bp - q) / b, where b represents net odds, p denotes your probability estimate, and q equals 1-p.
- Superforecaster
- An individual demonstrating persistently superior calibration across numerous forecasting attempts, consistent with Philip Tetlock's scholarly findings.
Blockchain & Settlement Terms
- Polygon
- The secondary-layer blockchain infrastructure supporting Polymarket and PolyGram operations. This network provides negligible transaction expenses and rapid transaction confirmation within roughly 2 seconds.
- USDC (USD Coin)
- The dollar-pegged digital currency facilitating settlement within prediction markets. Each unit maintains parity with one US dollar, with issuance managed by Circle and collateralised through US government debt instruments.
- Smart Contract
- Autonomous programme code residing on blockchain infrastructure that safeguards market capital and executes payout distributions automatically upon market conclusion.
- Oracle
- A verified information provider that communicates factual real-world occurrences to blockchain-based programmes. Polymarket leverages UMA's optimistic reporting mechanism for market settlement.
- Gas
- The compensation paid to Polygon network participants for validating transactions. On Polygon, these charges typically remain beneath one cent per transaction.
Market Types
- Binary Market
- A market structure featuring precisely two mutually exclusive outcomes (YES/NO). This represents the predominant architecture in prediction market platforms.
- Categorical Market
- A market structure permitting multiple distinct outcomes (for instance, "Which candidate will secure the Republican Party's 2028 nomination?").
- Scalar Market
- A market where compensation adjusts proportionally to the realised outcome magnitude (such as "At what price will Bitcoin trade on the final day of the year?").
- Conditional Market
- A market structure that only concludes contingent upon a prerequisite event materialising. The market becomes void should the prerequisite fail to occur.
FAQ
- Where can I learn more prediction market terminology?
- PolyGram's API documentation provides thorough treatment of technical vocabulary. Polymarket's support resources address consumer-oriented definitions.
- What is the difference between a prediction market and a futures contract?
- Futures instruments maintain perpetually fluctuating valuations pegged to some underlying reference. Prediction markets instead deliver fixed payouts of either $0 or $1 contingent upon whether an occurrence transpires.
- What does it mean when a market is "resolved YES"?
- The underlying event has transpired, causing YES positions to settle at $1 per unit. NO positions receive $0. The blockchain infrastructure executes settlement instantaneously.