In this guide
Trading in prediction markets requires familiarity with terminology spanning finance, mathematics, and distributed ledger systems. This glossary presents 64 fundamental concepts that every prediction market participant ought to grasp — covering everything from execution mechanics and position management to decentralised infrastructure and probabilistic forecasting.
Core Trading Terms
- Ask (Offer)
- The minimum price a seller will accept to part with shares. When you transact at market rates, you pay this ask price.
- Bid
- The maximum price a purchaser will pay for shares. When you sell at prevailing market rates, you receive the bid price.
- Bid-Ask Spread
- The gap separating the lowest ask from the highest bid. Narrower spreads indicate deeper liquidity and reduced transaction expenses.
- CLOB (Central Limit Order Book)
- The matching engine deployed by Polymarket and PolyGram. It reconciles posted buy and sell orders according to price level and temporal sequence.
- Conditional Token
- The blockchain-based representation of a YES or NO position within a prediction market. These tokens reside within smart contracts deployed on Polygon.
- Fill Price
- The precise price your transaction settled at. This may diverge from the quoted price if market conditions shift between submission and completion.
- FOK (Fill or Kill)
- An instruction type requiring immediate complete execution or automatic cancellation. Fractional fills are not permitted.
- Liquidity
- The capacity to transact in volume without materially moving the price. Markets exhibiting high volume and compressed spreads demonstrate superior liquidity.
- Market Order
- An instruction to transact immediately at whatever price the market currently offers. Execution is instant but price is not guaranteed.
- Limit Order
- An instruction to transact exclusively at your specified price threshold 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 available depth.
- Slippage
- The variance between anticipated execution price and actual settlement price, arising from inadequate depth at your target level.
Probability & Statistics Terms
- Brier Score
- A metric quantifying forecast precision. Smaller values indicate superior performance. Derived by computing the mean squared deviation between your assigned probability and the realised outcome (either 0 or 1).
- Calibration
- The degree to which your probability assignments correspond to empirical frequencies. Properly calibrated forecasters find that assertions made with 70% confidence materialise approximately 70% of the time.
- Expected Value (EV)
- The probable return when considering all scenarios weighted according to their likelihoods. Positive EV indicates a wager that generates profit across repeated trials.
- Kelly Criterion
- An algorithmic approach to determining stake magnitude: f = (bp - q) / b, where b represents net odds, p denotes probability, and q equals 1-p.
- Superforecaster
- A participant demonstrating consistently superior calibration performance across numerous forecasts, as documented in Philip Tetlock's academic work.
Blockchain & Settlement Terms
- Polygon
- The Layer 2 scaling solution hosting Polymarket and PolyGram operations. It provides transaction costs measured in fractions of a cent and achieves block finality within roughly two seconds.
- USDC (USD Coin)
- The dollar-pegged digital currency facilitating prediction market settlements. Each unit maintains parity with one US dollar, issued by Circle and collateralised by US government securities.
- Smart Contract
- Automated programme code residing on the blockchain that custodies prediction market capital and autonomously distributes winnings upon market conclusion.
- Oracle
- A verified information provider supplying real-world event data to blockchain programmes. Polymarket relies on UMA's optimistic oracle mechanism for determining outcomes.
- Gas
- The expense charged by Polygon validators for processing transactions. On Polygon, these costs typically remain below one cent per operation.
Market Types
- Binary Market
- A market structure permitting precisely two possible resolutions (YES/NO). This represents the predominant prediction market configuration.
- Categorical Market
- A market structure encompassing three or more distinct possible outcomes (such as "Which candidate will secure the Republican nomination in 2028?").
- Scalar Market
- A market structure where compensation adjusts proportionally with the outcome magnitude (for instance, "At what level will BTC trade on December 31?").
- Conditional Market
- A market structure that settles exclusively upon satisfaction of a prerequisite condition. The market becomes void if that prerequisite fails to materialise.
FAQ
- Where can I learn more prediction market terminology?
- PolyGram's API documentation provides thorough explanations 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 continuously fluctuating valuations reflecting an underlying commodity. Prediction markets deliver fixed payouts of either $0 or $1 contingent on whether an event transpires.
- What does it mean when a market is "resolved YES"?
- The predicted event has occurred, causing YES positions to remit $1 per unit. NO positions remit $0 per unit. Payout distribution executes mechanically through smart contract logic.