Trading in prediction markets requires familiarity with terminology rooted in derivatives trading, quantitative analysis, and distributed ledger systems. This glossary presents 64 critical terms that every prediction market participant should grasp — spanning execution mechanics, statistical foundations, blockchain infrastructure, and market structures.
Core Trading Terms
- Ask (Offer)
- The minimum price at which a seller agrees to part with shares. When you purchase at the prevailing market rate, you transact at the ask.
- Bid
- The maximum price a buyer will commit to pay for shares. When you liquidate at the prevailing market rate, you receive the bid.
- Bid-Ask Spread
- The gap separating the highest bid from the lowest ask. Narrower spreads indicate deeper liquidity and reduced transaction friction.
- CLOB (Central Limit Order Book)
- The matching engine employed by Polymarket and PolyGram. Pairs incoming buy and sell orders according to price level and temporal sequence.
- Conditional Token
- The blockchain-native asset representing a YES or NO position in a prediction market. These tokens are maintained within smart contracts deployed on Polygon.
- Fill Price
- The precise rate at which your transaction settled. This may diverge from the quoted rate if market conditions shift between order submission and completion.
- FOK (Fill or Kill)
- An instruction type requiring complete immediate execution or automatic cancellation. Partial completion is not permitted.
- Liquidity
- The capacity to transact substantial quantities without materially moving the price. Markets exhibiting high volume and compressed spreads demonstrate superior liquidity.
- Market Order
- A directive to transact at whatever price the market currently offers. Execution is instantaneous, though the precise rate is not predetermined.
- Limit Order
- A directive to transact exclusively at a designated price threshold or more favourably. The order remains in the queue until a matching counterparty is found or the order is withdrawn.
- Open Interest
- The aggregate notional value of all active, unresolved positions across a market. Elevated open interest signals robust participation and trading depth.
- Slippage
- The variance between anticipated execution price and actual settlement price, arising from inadequate depth at the desired price level.
Probability & Statistics Terms
- Brier Score
- A quantitative assessment of forecast precision. Smaller values indicate superior accuracy. Computation involves the average squared deviation between your assigned probability and the realised outcome (either 0 or 1).
- Calibration
- An evaluation of whether your probability assignments correspond with empirical frequencies. Proper calibration means that events you assess at 70% likelihood materialise roughly 70% of the time.
- Expected Value (EV)
- The probability-weighted mean of all conceivable outcomes. A positive EV indicates a wager that generates profit when repeated across numerous instances.
- Kelly Criterion
- A mathematical approach to determining position magnitude: f = (bp - q) / b, in which b represents net odds, p denotes probability, and q equals 1-p.
- Superforecaster
- An individual exhibiting superior calibration performance across a substantial forecast history, consistent with Philip Tetlock's empirical framework.
Blockchain & Settlement Terms
- Polygon
- The Layer 2 scaling solution on which Polymarket and PolyGram function. Delivers transaction costs beneath one cent and achieves settlement within approximately two seconds.
- USDC (USD Coin)
- The collateralised stablecoin utilised for prediction market payouts. Each unit maintains parity with the US dollar, with issuance by Circle and backing from US government debt instruments.
- Smart Contract
- Autonomous programme logic deployed on the blockchain that manages market collateral and executes payout distributions upon market finalisation.
- Oracle
- A verified information provider supplying real-world event data to blockchain-based contracts. Polymarket leverages UMA's optimistic oracle mechanism for market resolution.
- Gas
- The compensation required by Polygon validators to process and validate transactions. On Polygon, this typically amounts to less than one cent per operation.
Market Types
- Binary Market
- A market structure featuring precisely two mutually exclusive outcomes (YES/NO). This represents the predominant prediction market configuration.
- Categorical Market
- A market structure permitting multiple distinct outcomes (e.g., "Which candidate will secure the Republican nomination in 2028?").
- Scalar Market
- A market structure where compensation adjusts proportionally to the outcome magnitude (e.g., "What will the Bitcoin exchange rate be on 31 December?").
- Conditional Market
- A market structure that finalises exclusively if a prerequisite condition materialises. The market becomes void should the condition fail to occur.
FAQ
- Where can I learn more prediction market terminology?
- PolyGram's API documentation provides 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?
- A futures contract maintains a dynamic price reflecting an underlying asset's value. 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 forecasted event has occurred, resulting in YES shares yielding $1 per unit. NO shares yield nothing. Payout distribution occurs instantaneously through automated smart contract execution.