In this guide
The world of prediction market trading operates within a specialised lexicon that draws together concepts from financial markets, quantitative analysis, and distributed ledger systems. This glossary presents 64 fundamental terms that every prediction market participant ought to grasp — encompassing execution mechanics, position management approaches, decentralised infrastructure, and probabilistic forecasting frameworks.
Core Trading Terms
- Ask (Offer)
- The minimum price threshold at which a seller will part with their shares. When you acquire shares at prevailing market rates, you transact at the ask price.
- Bid
- The maximum price at which a prospective buyer commits to purchasing shares. When you liquidate shares at prevailing market rates, you receive the bid price.
- Bid-Ask Spread
- The gap separating the highest bid from the lowest ask. Narrower spreads signal deeper liquidity and translate to reduced transaction friction.
- CLOB (Central Limit Order Book)
- The order-matching infrastructure deployed by Polymarket and PolyGram. It reconciles resting purchase and sale orders according to price hierarchy and temporal sequence.
- Conditional Token
- The blockchain-native asset representing a YES or NO position within a prediction market. These tokens exist as smart contract holdings on Polygon.
- Fill Price
- The precise rate at which your transaction settled. This may diverge from your quoted expectation should market conditions shift between submission and completion.
- FOK (Fill or Kill)
- An instruction type requiring immediate complete execution or automatic cancellation. Fractional settlement is not permitted.
- Liquidity
- The capacity to transact substantial volumes without materially moving the quoted price. Markets exhibiting robust volume and compressed spreads demonstrate superior liquidity characteristics.
- Market Order
- An instruction to transact at whatever price the market currently quotes. Settlement occurs instantly, though the execution rate remains market-determined.
- Limit Order
- An instruction to transact exclusively at your stipulated price threshold or more favourably. The order persists within the book until a counterparty matches it or you withdraw it.
- Open Interest
- The aggregate notional exposure of all unsettled positions across a given market. Elevated open interest correlates with heightened participant engagement and available depth.
- Slippage
- The variance between your anticipated execution price and the price you ultimately received, stemming from constrained depth at your target level.
Probability & Statistics Terms
- Brier Score
- A quantitative assessment of forecasting precision. Smaller values denote superior performance. It reflects the mean squared deviation between your stated confidence and the realised outcome (either 0 or 1).
- Calibration
- The alignment between your stated confidence levels and empirical realisation rates. Proper calibration manifests when assertions made at 70% confidence materialise roughly 70% of the time.
- Expected Value (EV)
- The probability-weighted mean of all conceivable results. Trades exhibiting positive EV constitute mathematically sound wagers across extended time horizons.
- Kelly Criterion
- A mathematical framework governing optimal stake allocation: f = (bp - q) / b, where b denotes net odds, p signifies probability, and q represents 1-p.
- Superforecaster
- An individual demonstrating persistently superior calibration performance across numerous predictions, consistent with the framework established by Philip Tetlock's empirical investigations.
Blockchain & Settlement Terms
- Polygon
- The secondary-layer blockchain infrastructure supporting Polymarket and PolyGram operations. It facilitates transaction costs measured in fractions of cents alongside transaction confirmation within approximately 2 seconds.
- USDC (USD Coin)
- The dollar-pegged digital asset employed for settlement within prediction markets. Its value maintains a 1:1 correspondence with the US dollar, with issuance administered by Circle and reserves held in US government securities.
- Smart Contract
- Autonomous programmes residing on distributed ledgers that custodise prediction market capital and execute payout distributions upon market conclusion without intermediation.
- Oracle
- An authoritative information provider that communicates real-world event outcomes to blockchain-based systems. Polymarket leverages UMA's optimistic oracle mechanism for determining market resolution.
- Gas
- The compensation mechanism for Polygon validators processing your transaction. On Polygon, these fees typically remain below one cent per operation.
Market Types
- Binary Market
- A market structure presenting precisely two mutually exclusive outcomes (YES/NO). This represents the predominant architecture across prediction market platforms.
- Categorical Market
- A market structure accommodating three or more distinct possibilities (for instance, "Which candidate will secure the Republican nomination in 2028?").
- Scalar Market
- A market where compensation adjusts proportionally according to the outcome's numerical value (for example, "What will the Bitcoin price equal on December 31?").
- Conditional Market
- A market whose determination hinges upon the occurrence of a prerequisite event. The market becomes void should the conditioning event fail to materialise.
FAQ
- Where can I learn more prediction market terminology?
- PolyGam's API documentation provides comprehensive technical reference material. Polymarket's support resources address concepts relevant to end users.
- What is the difference between a prediction market and a futures contract?
- Futures instruments maintain continuously fluctuating valuations anchored to underlying asset performance. Prediction markets instead deliver fixed $0 or $1 settlement contingent upon event realisation.
- What does it mean when a market is "resolved YES"?
- The underlying event materialised, causing YES share holders to receive $1 per share. NO share holders receive nothing. The smart contract orchestrates settlement instantaneously.