In this guide
Trading in prediction markets requires familiarity with terminology spanning finance, statistical analysis, and distributed ledger systems. This comprehensive glossary presents 64 key terms that every prediction market participant should grasp — encompassing execution mechanisms, portfolio safeguards, decentralised infrastructure, and probabilistic assessment frameworks.
Core Trading Terms
- Ask (Offer)
- The minimum price at which a seller agrees to part with shares. When you acquire at market rates, you transact at the ask price.
- Bid
- The maximum price a buyer will commit to pay for shares. Upon selling at market rates, you receive the bid price.
- Bid-Ask Spread
- The gap separating the highest bid from the lowest ask. Narrower spreads indicate greater liquidity and reduced transaction expenses.
- CLOB (Central Limit Order Book)
- The order-matching infrastructure employed by Polymarket and PolyGram. Pairs outstanding buy and sell orders according to price hierarchy and temporal sequence.
- Conditional Token
- The blockchain-based record of a YES or NO share within a prediction market. These assets reside in cryptographic contracts across Polygon.
- Fill Price
- The precise rate at which your transaction completed. This may diverge from the quoted rate if market conditions shift between order submission and finalisation.
- FOK (Fill or Kill)
- An instruction type requiring immediate full execution or automatic cancellation. Fractional fills are not permitted.
- Liquidity
- The capacity to transact shares readily without materially moving the price. Markets exhibiting substantial volume and compressed spreads display superior liquidity.
- Market Order
- An instruction to transact at the most favourable price presently available. Settlement occurs instantly at prevailing market conditions.
- Limit Order
- An instruction to transact exclusively at a designated price or superior terms. The order waits in the book until a counterparty matches or you withdraw it.
- Open Interest
- The aggregate monetary value of all unresolved active positions within a market. Elevated open interest signals robust trading volume and market depth.
- Slippage
- The variance between anticipated execution price and actual settlement price, typically arising from inadequate depth at your target level.
Probability & Statistics Terms
- Brier Score
- A metric quantifying forecast precision. Reduced values indicate superior performance. Computed as the average of squared deviations between your forecast and the realised outcome (either 0 or 1).
- Calibration
- The degree to which your probability assignments correspond to empirical frequencies. Proper calibration means assertions made with 70% confidence materialise 70% of the time.
- Expected Value (EV)
- The probable return when considering all scenarios weighted by their likelihood. Positive EV indicates a wager generating profit over extended periods.
- Kelly Criterion
- A mathematical framework for determining ideal stake allocation: f = (bp - q) / b, in which b denotes net odds, p denotes likelihood, and q equals 1-p.
- Superforecaster
- A market participant or analyst exhibiting consistently superior calibration performance across numerous forecasts, as documented in Philip Tetlock's scholarly work.
Blockchain & Settlement Terms
- Polygon
- The secondary-layer blockchain infrastructure supporting Polymarket and PolyGram operations. Delivers transaction fees under one cent and achieves settlement within approximately two seconds.
- USDC (USD Coin)
- The collateralised fiat token employed for prediction market settlements. One unit maintains parity with one US dollar, administered by Circle and underpinned by American government securities.
- Smart Contract
- Autonomous executable logic deployed on distributed ledgers that secures prediction market capital and distributes winnings automatically upon market conclusion.
- Oracle
- An authoritative information provider that furnishes real-world event data to blockchain applications. Polymarket leverages UMA's optimistic oracle mechanism for market settlement.
- Gas
- The expense incurred to compensate Polygon network validators for processing operations. On Polygon, charges seldom exceed $0.01 per transaction.
Market Types
- Binary Market
- A market structure featuring precisely two possible resolutions (YES/NO). This represents the predominant prediction market configuration.
- Categorical Market
- A market structure permitting multiple 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 exchange rate be on the final day of the year?").
- Conditional Market
- A market whose resolution depends upon satisfaction of a preceding condition. The market becomes null if the precondition fails to materialise.
FAQ
- Where can I learn more prediction market terminology?
- PolyGram's API documentation furnishes comprehensive technical definitions. Polymarket's support section addresses consumer-oriented language and ideas.
- What is the difference between a prediction market and a futures contract?
- A futures contract maintains a fluctuating price reflecting an underlying commodity. A prediction market delivers a fixed $0 or $1 settlement contingent upon whether an event transpires.
- What does it mean when a market is "resolved YES"?
- The anticipated event has materialised, causing YES shares to yield $1 apiece. NO shares yield nothing. The blockchain automatically executes the payout distribution.