In this guide
Trading in prediction markets requires familiarity with terminology spanning finance, data analysis, and distributed ledger systems. This glossary presents 64 core terms that every prediction market participant should grasp — covering order mechanics, position management, cryptographic infrastructure, and probabilistic forecasting methods.
Core Trading Terms
- Ask (Offer)
- The minimum price demanded by a seller to part with shares. When you purchase at prevailing market rates, you transact at the ask.
- Bid
- The maximum price a buyer will commit to for acquiring shares. When you liquidate at prevailing market rates, you receive the bid.
- Bid-Ask Spread
- The gap separating the lowest ask from the highest bid. Narrower spreads indicate deeper liquidity and reduced friction costs.
- CLOB (Central Limit Order Book)
- The matching engine employed by Polymarket and PolyGram. It pairs pending buy and sell orders according to price level and temporal sequence.
- Conditional Token
- The blockchain-native asset representing a YES or NO stake in a prediction market. These holdings exist as entries in smart contracts deployed 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 execution.
- FOK (Fill or Kill)
- An instruction type requiring immediate complete execution or automatic cancellation. Fractional completion is not permitted.
- Liquidity
- The capacity to transact substantial volume without materially moving the price. Markets exhibiting high turnover and compressed spreads display superior liquidity.
- Market Order
- A directive to transact at the most favourable rate currently available. Execution occurs instantly, though at whatever the market currently quotes.
- Limit Order
- A directive to transact exclusively at a designated rate or more favourably. The order waits in the book until a counterparty matches it or you withdraw it.
- Open Interest
- The aggregate notional value of all active unresolved positions across a market. Elevated open interest signals robust participation and depth.
- Slippage
- The shortfall between anticipated execution price and actual fill price, arising from inadequate depth at your target level.
Probability & Statistics Terms
- Brier Score
- A metric quantifying forecast precision. Smaller values denote superior performance. Computation involves the mean squared deviation between your stated likelihood and the realised outcome (either 0 or 1).
- Calibration
- An assessment of alignment between your assigned probabilities and empirical frequencies. Proper calibration means assertions made with 70% confidence materialise roughly 70% of the time.
- Expected Value (EV)
- The probability-weighted mean of all conceivable results. Positive EV indicates a wager that generates profit when repeated across many instances.
- Kelly Criterion
- A mathematical framework for determining ideal stake magnitude: f = (bp - q) / b, where b represents net odds, p denotes probability, and q equals 1-p.
- Superforecaster
- An individual demonstrating persistently superior calibration across numerous forecasts, as documented in Philip Tetlock's scholarly work.
Blockchain & Settlement Terms
- Polygon
- The secondary-layer blockchain infrastructure supporting Polymarket and PolyGram. It delivers transaction fees below one cent and achieves settlement finality in roughly two seconds.
- USDC (USD Coin)
- The dollar-pegged token utilised for settling prediction market transactions. Each unit maintains equivalence to one US dollar, with issuance managed by Circle and collateralised by US government debt instruments.
- Smart Contract
- Autonomous programme code residing on-chain that custodies prediction market capital and automatically distributes winnings upon market conclusion.
- Oracle
- An authoritative information provider supplying real-world event data to on-chain programmes. Polymarket leverages UMA's optimistic reporting mechanism for market settlement.
- Gas
- The compensation remitted to Polygon validators for transaction processing. Polygon-based transactions typically incur fees under one cent.
Market Types
- Binary Market
- A market structure presenting precisely two possible resolutions (YES/NO). This remains the predominant architecture in prediction markets.
- Categorical Market
- A market structure accommodating three or more distinct outcomes (for instance, "Which candidate will secure the Republican nomination in 2028?").
- Scalar Market
- A market where compensation adjusts proportionally to the outcome magnitude (for example, "What will the Bitcoin price equal on 31 December?").
- Conditional Market
- A market that settles exclusively if a prerequisite condition materialises. The market becomes void should the condition 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 terminology.
- What is the difference between a prediction market and a futures contract?
- Futures instruments maintain fluctuating valuations pegged to underlying asset movements. Prediction markets deliver discrete payouts of either $0 or $1 contingent on event occurrence.
- What does it mean when a market is "resolved YES"?
- The outcome materialised, causing YES holdings to yield $1 per share. NO holdings yield nothing. The blockchain executes settlement instantaneously through programme logic.