In this guide
Trading in prediction markets draws upon a specialised lexicon spanning finance, quantitative methods, and distributed ledger systems. This glossary presents 64 key terms that every prediction market participant ought to grasp — encompassing execution mechanics, portfolio safeguards, cryptographic infrastructure, and probabilistic reasoning frameworks.
Core Trading Terms
- Ask (Offer)
- The minimum price threshold at which a seller will part with shares. When you acquire at prevailing market rates, you transact at the ask price.
- Bid
- The maximum price a buyer will commit to for purchasing shares. Upon selling at current market conditions, you realise the bid price.
- Bid-Ask Spread
- The gap separating the highest bid from the lowest ask. Narrower spreads signal deeper liquidity and reduced transaction friction.
- CLOB (Central Limit Order Book)
- The order-matching engine powering Polymarket and PolyGam. It pairs outstanding buy and sell orders according to price precedence and temporal sequence.
- Conditional Token
- The blockchain-native asset representing a YES or NO stake within a prediction market. These instruments reside in cryptographic contracts deployed on Polygon.
- Fill Price
- The precise rate at which your transaction was completed. This may diverge from the quoted rate should market conditions shift between submission and settlement.
- 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 whilst maintaining stable pricing. Markets exhibiting robust participation and compressed spreads demonstrate superior liquidity characteristics.
- Market Order
- An instruction to transact at the most advantageous price currently obtainable. Execution occurs instantaneously, though at whatever terms the market provides.
- Limit Order
- An instruction specifying a maximum or minimum price threshold for execution. The order remains pending in the book until a matching counterparty emerges or cancellation occurs.
- Open Interest
- The aggregate notional value of all unresolved active positions across a market. Elevated open interest correlates with heightened participation and depth.
- Slippage
- The variance between anticipated execution price and actual settlement price, stemming from inadequate order-book depth at the target level.
Probability & Statistics Terms
- Brier Score
- A quantitative assessment of forecast precision. Diminished values signify superior performance. Computation involves averaging the squared deviations between your stated probability and the realised outcome (either 0 or 1).
- Calibration
- An evaluation of alignment between your probabilistic judgements and subsequent empirical results. Properly calibrated forecasters find that assertions made with 70% conviction materialise approximately 70% of the time.
- Expected Value (EV)
- The probability-weighted average result encompassing all conceivable scenarios. Ventures exhibiting positive EV generate profits when repeated across numerous iterations.
- Kelly Criterion
- A mathematical framework for determining optimal stake allocation: f = (bp - q) / b, where b represents net odds, p denotes your assessed probability, and q equals 1-p.
- Superforecaster
- A market participant or analyst demonstrating sustained superior calibration performance across extensive prediction histories, consistent with Philip Tetlock's empirical research.
Blockchain & Settlement Terms
- Polygon
- The secondary-layer blockchain infrastructure supporting Polymarket and PolyGram operations. It furnishes transaction expenses measured in fractions of cents and settlement confirmation within approximately 2 seconds.
- USDC (USD Coin)
- The collateralised digital currency employed for prediction market transactions and payouts. Each unit maintains parity with one US dollar, administered by Circle and underpinned by American government debt instruments.
- Smart Contract
- Autonomous executable protocols residing on distributed ledgers that custodise prediction market capital and orchestrate instantaneous compensation distributions upon market conclusion.
- Oracle
- An authoritative information conduit supplying factual event data to blockchain-based contracts. Polymarket leverages UMA's presumptive oracle mechanism for market finalisation.
- Gas
- The compensation remitted to Polygon network operators for transaction validation. Polygon-based operations typically incur expenses beneath one cent per transaction.
Market Types
- Binary Market
- A market structure presenting precisely two mutually exclusive outcomes (YES/NO). This represents the predominant architecture within prediction market ecosystems.
- Categorical Market
- A market structure permitting three or more distinct outcomes (for instance, "Which candidate will secure the Republican presidential nomination in 2028?").
- Scalar Market
- A market where compensation adjusts proportionally with the outcome magnitude (for example, "At what price will Bitcoin trade on the final day of the year?").
- Conditional Market
- A market whose resolution hinges upon the occurrence of a prerequisite event. The market becomes void should the conditioning circumstance fail to materialise.
FAQ
- Where can I learn more prediction market terminology?
- PolyGram's API documentation furnishes comprehensive technical definitions. Polymarket's support resources address consumer-oriented language and concepts.
- What is the difference between a prediction market and a futures contract?
- Futures instruments maintain continuously fluctuating valuations anchored to underlying asset prices. Prediction markets instead deliver fixed $0 or $1 settlements determined by whether specified events transpire.
- What does it mean when a market is "resolved YES"?
- The specified event has occurred, causing YES positions to receive $1 per share. NO positions yield $0. Payout distribution executes automatically through cryptographic contract mechanisms.