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 should grasp — covering everything from execution mechanics and position management through cryptographic infrastructure and probabilistic assessment methods.
Core Trading Terms
- Ask (Offer)
- The minimum price at which a seller will part with shares. When you acquire shares at the prevailing market rate, you transact at this ask level.
- Bid
- The maximum price a prospective buyer will commit to for shares. When you liquidate shares at the prevailing market rate, you receive the bid price.
- 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 deployed by Polymarket and PolyGram. It pairs incoming buy and sell orders according to price levels and temporal sequence.
- Conditional Token
- An on-chain 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 completed. This may diverge from the quoted rate if market conditions shift between submission and settlement.
- FOK (Fill or Kill)
- An instruction type requiring complete immediate execution or automatic cancellation. Fractional fills are not permitted.
- Liquidity
- The capacity to transact in meaningful volume without materially shifting the quoted price. Markets exhibiting substantial turnover and compressed spreads display superior liquidity.
- Market Order
- A directive to transact at whatever price the market currently quotes. Execution is instantaneous, though the exact price depends on available counterparties.
- Limit Order
- A directive to transact exclusively at a designated price threshold or more favourably. The order persists in the matching engine until a counterparty appears or you withdraw it.
- Open Interest
- The aggregate notional value of all active, unresolved positions across a given market. Greater open interest signals heightened participation and tighter pricing.
- Slippage
- The variance between your anticipated execution price and the actual price realised, typically arising from inadequate depth at your target level.
Probability & Statistics Terms
- Brier Score
- A metric quantifying forecast precision. Smaller values denote superior accuracy. It computes the average squared deviation between your stated likelihood and the true outcome (either 0 or 1).
- Calibration
- An assessment of whether your probability statements align with empirical frequencies. Proper calibration means assertions made with 70% confidence materialise roughly 70% of the time.
- Expected Value (EV)
- The probable outcome when integrating all scenarios, each weighted by its likelihood. Positive EV indicates a wager that generates profit across repeated iterations.
- Kelly Criterion
- A mathematical framework for determining ideal stake magnitude: f = (bp - q) / b, where b represents net odds, p denotes probability, and q equals 1-p.
- Superforecaster
- An individual demonstrating sustained superior calibration performance across numerous forecasts, as documented in Philip Tetlock's scholarly investigations.
Blockchain & Settlement Terms
- Polygon
- The secondary-layer blockchain infrastructure supporting Polymarket and PolyGram operations. It delivers minimal transaction expenses (fractions of a cent) and rapid settlement (approximately 2 seconds).
- USDC (USD Coin)
- The dollar-pegged digital asset employed for prediction market payouts. Each unit maintains parity with one US dollar, with Circle serving as issuer and US government debt providing collateral.
- Smart Contract
- Autonomous programme code residing on the blockchain that custodies prediction market capital and executes payout distribution upon market conclusion.
- Oracle
- An authoritative information provider furnishing real-world event data to blockchain-based contracts. PolyGram leverages UMA's optimistic oracle mechanism for market determination.
- Gas
- The compensation remitted to Polygon network operators for validating and recording transactions. Polygon fees typically remain beneath one cent per operation.
Market Types
- Binary Market
- A market structure permitting precisely two potential resolutions (YES or NO). This represents the predominant architecture in prediction market design.
- Categorical Market
- A market structure accommodating multiple distinct outcomes (for instance, "Which candidate will secure the Republican nomination in 2028?").
- Scalar Market
- A market structure where compensation adjusts proportionally to the realised outcome magnitude (for example, "What shall the Bitcoin exchange rate equal on the final day of the year?").
- Conditional Market
- A market structure that becomes operative only upon satisfaction of a prerequisite condition. The market becomes void should that prerequisite 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 concepts relevant to end users.
- What is the difference between a prediction market and a futures contract?
- Futures contracts maintain perpetually fluctuating valuations anchored to underlying assets. Prediction markets deliver fixed payouts (either $0 or $1) contingent upon whether specified events transpire.
- What does it mean when a market is "resolved YES"?
- The forecasted event has occurred, causing YES share holders to receive $1 per unit. NO share holders receive nothing. Disbursement happens instantaneously through automated contract execution.