In this guide
Trading in prediction markets requires familiarity with terminology spanning finance, probability theory, and distributed ledger systems. This glossary presents 64 critical terms that every prediction market participant should grasp — covering execution mechanisms, position management, statistical concepts, and blockchain infrastructure.
Core Trading Terms
- Ask (Offer)
- The minimum amount a seller demands to part with shares. When you acquire shares at prevailing market rates, you transact at the ask price.
- Bid
- The maximum amount a buyer will commit to acquire shares. When you dispose of shares 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 pairs dormant buy orders against 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 reside within smart contracts deployed on Polygon.
- Fill Price
- The precise price at which your trade was completed. This may diverge from the quoted price should market conditions shift between submission and execution.
- FOK (Fill or Kill)
- An instruction requiring immediate complete execution or automatic cancellation. Fractional completion is not permitted.
- Liquidity
- The capacity to transact substantial volumes without materially moving the quoted price. Markets exhibiting high volume and compressed spreads demonstrate superior liquidity.
- Market Order
- A directive to transact at whatever price the market currently offers. Settlement occurs instantly, though the final price reflects current supply and demand.
- Limit Order
- A directive to transact exclusively at a designated 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 amount tied up in unresolved positions across a market. Elevated open interest signals robust participation and depth.
- Slippage
- The variance between your anticipated execution price and the price you actually receive, stemming from inadequate depth at your target level.
Probability & Statistics Terms
- Brier Score
- A metric quantifying forecast precision. Smaller values denote superior performance. Computation involves the average squared deviation between your stated probability and the realised outcome (either 0 or 1).
- Calibration
- The degree to which your stated confidence levels correspond to empirical frequencies. Excellent calibration means forecasts assigned 70% confidence materialise roughly 70% of the time.
- Expected Value (EV)
- The long-run average outcome when weighting each scenario by its likelihood. Positive EV indicates a wager that generates returns across repeated trials.
- Kelly Criterion
- A position-sizing framework derived mathematically: f = (bp - q) / b, where b represents net odds, p denotes your probability estimate, and q equals 1-p.
- Superforecaster
- An individual demonstrating consistently superior calibration performance across numerous forecasts, per Philip Tetlock's academic framework.
Blockchain & Settlement Terms
- Polygon
- The Layer 2 scaling solution underpinning Polymarket and PolyGram infrastructure. It facilitates transactions costing fractions of a cent with settlement within approximately 2 seconds.
- USDC (USD Coin)
- The dollar-pegged token utilised for settlement within prediction markets. Each unit maintains equivalence to one US dollar, issued by Circle with backing from US government debt instruments.
- Smart Contract
- Autonomous programmes residing on the blockchain that custody prediction market capital and execute payouts automatically upon market conclusion.
- Oracle
- An authoritative information provider that furnishes real-world event data to blockchain applications. Polymarket leverages UMA's optimistic oracle mechanism for determining market outcomes.
- Gas
- The expense incurred when validators process your transaction on Polygon. Costs typically remain below one cent per operation on this network.
Market Types
- Binary Market
- A market structure permitting solely two terminal states (YES/NO). This represents the predominant architecture in prediction market design.
- Categorical Market
- A market permitting multiple distinct outcomes (such as "Which candidate will secure the 2028 Republican nomination?").
- Scalar Market
- A market where compensation adjusts proportionally to the outcome magnitude (for instance, "At what level will BTC trade on December 31?").
- Conditional Market
- A market that settles exclusively if an antecedent condition transpires. The market becomes void should that condition fail to materialise.
FAQ
- Where can I learn more prediction market terminology?
- PolyGram's API documentation provides comprehensive technical definitions. Polymarket's support resources address consumer-oriented vocabulary.
- What is the difference between a prediction market and a futures contract?
- Futures instruments maintain a dynamic valuation reflecting an underlying asset's price trajectory. Prediction markets deliver a fixed $0 or $1 settlement contingent on whether an event materialises.
- What does it mean when a market is "resolved YES"?
- The predicted event has occurred, causing YES positions to yield $1 per share. NO positions yield nothing. Payout distribution occurs mechanically through the smart contract infrastructure.