Trading on prediction markets requires familiarity with terminology spanning finance, data analysis, and distributed ledger systems. This glossary defines 64 critical terms that every prediction market trader must grasp — encompassing execution mechanics, statistical foundations, blockchain infrastructure, and market structures.
Core Trading Terms
- Ask (Offer)
- The minimum price at which a seller will part with shares. When you purchase at market rates, you transact at this ask level.
- Bid
- The maximum price a buyer will commit to for share acquisition. When you liquidate at market rates, you obtain this bid level.
- Bid-Ask Spread
- The gap separating the best ask from the best bid. Narrower spreads indicate superior market depth and reduced transaction friction.
- CLOB (Central Limit Order Book)
- The order-matching engine deployed by Polymarket and PolyGram. It reconciles pending buy and sell orders according to price hierarchy and temporal sequence.
- Conditional Token
- The blockchain-based representation of a YES or NO share within a prediction market. These assets reside within smart contracts deployed on Polygon.
- Fill Price
- The precise price at which your transaction was completed. This may diverge from the quoted price if market conditions shift between submission and settlement.
- FOK (Fill or Kill)
- An order instruction requiring immediate complete execution or automatic cancellation. Fractional fills are not permitted.
- Liquidity
- The capacity to transact shares without materially moving the price. Markets exhibiting high volume and compressed spreads demonstrate superior liquidity characteristics.
- Market Order
- An instruction to acquire or dispose of shares at prevailing market rates. Execution occurs instantly but at whatever price the market currently offers.
- Limit Order
- An instruction to transact only at a designated price threshold or more favourably. The order sits in the book awaiting a matching counterparty or cancellation.
- Open Interest
- The cumulative notional value of all active unresolved positions across a market. Elevated open interest signals robust trading engagement and market depth.
- Slippage
- The variance between anticipated execution price and actual settlement price, stemming from inadequate liquidity at the desired price level.
Probability & Statistics Terms
- Brier Score
- A metric quantifying forecast precision. Smaller values denote superior accuracy. Computation involves the mean squared deviation between your assigned probability and the realised outcome (either 0 or 1).
- Calibration
- An assessment of alignment between your probability assignments and empirical frequencies. Excellent calibration means predictions assigned 70% likelihood materialise roughly 70% of the time.
- Expected Value (EV)
- The anticipated result when integrating all conceivable scenarios, each weighted by its likelihood. Positive EV indicates a wager with profitable characteristics over extended periods.
- Kelly Criterion
- A mathematical framework governing ideal position magnitude: f = (bp - q) / b, with b representing net odds, p denoting probability, and q equalling 1-p.
- Superforecaster
- A market participant or analyst exhibiting sustained superior calibration performance across numerous forecasts, consistent with Philip Tetlock's academic findings.
Blockchain & Settlement Terms
- Polygon
- The Layer 2 settlement network underpinning Polymarket and PolyGram operations. It delivers sub-penny transaction expenses and achieves block finality within approximately 2 seconds.
- USDC (USD Coin)
- The collateralised stablecoin facilitating prediction market transactions and payouts. Each unit maintains parity with the US dollar, administered by Circle and secured by US government obligations.
- Smart Contract
- Autonomous executable logic deployed on the blockchain that custodies prediction market capital and orchestrates automatic settlement distributions upon market conclusion.
- Oracle
- An authoritative information conduit supplying verified real-world event data to blockchain-based contracts. Polymarket leverages UMA's optimistic oracle mechanism for market determination.
- Gas
- The expense incurred to compensate Polygon validators for transaction processing. On Polygon, costs typically remain beneath one cent per transaction.
Market Types
- Binary Market
- A market structure permitting precisely two potential resolutions (YES/NO). This represents the predominant architecture across prediction market platforms.
- Categorical Market
- A market permitting three or more distinct outcomes (for instance, "Which candidate will secure the Republican nomination in 2028?").
- Scalar Market
- A market where compensation adjusts proportionally with the outcome magnitude (for example, "At what price will BTC trade on December 31?").
- Conditional Market
- A market whose determination hinges upon a prerequisite event materialising. The market becomes void should the prerequisite fail to occur.
FAQ
- Where can I learn more prediction market terminology?
- PolyGram's API documentation provides thorough technical definitions. Polymarket's support resources address consumer-oriented language and concepts.
- What is the difference between a prediction market and a futures contract?
- A futures contract maintains a dynamic price reflecting an underlying instrument. 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 underlying event has occurred, causing YES shares to remit $1 per unit. NO shares remit $0 per unit. The blockchain automatically executes settlement through the smart contract.