In this guide
Trading on prediction markets requires familiarity with terminology spanning finance, mathematics, and distributed ledger systems. This glossary defines 64 critical terms that every prediction market participant should grasp — encompassing execution mechanics, statistical foundations, blockchain infrastructure, and market classification frameworks.
Core Trading Terms
- Ask (Offer)
- The minimum price at which a seller agrees to part with shares. Buyers must pay this amount when transacting at prevailing market rates.
- Bid
- The maximum price a buyer will commit to acquiring shares. Sellers obtain this amount when liquidating at current market rates.
- Bid-Ask Spread
- The gap separating the lowest ask from the highest bid. Narrower spreads indicate superior market depth and reduced transaction friction.
- CLOB (Central Limit Order Book)
- The matching engine deployed by Polymarket and PolyGram. Pairs incoming buy and sell orders according to price levels and temporal sequence.
- Conditional Token
- The blockchain-native asset representing a YES or NO position in a prediction market. Maintained within smart contracts deployed on Polygon.
- Fill Price
- The precise price at which your transaction completed. Often diverges from the quoted price if market conditions shift between submission and settlement.
- FOK (Fill or Kill)
- An instruction requiring immediate full execution or automatic cancellation. Partial completion is not permitted.
- Liquidity
- The capacity to transact substantial volumes without materially moving the price. Markets exhibiting high participation and compressed spreads demonstrate superior liquidity.
- Market Order
- A directive to transact immediately at prevailing market rates. Guarantees swift execution but offers no price certainty.
- Limit Order
- A directive to transact exclusively at a designated price threshold or more favourably. Remains dormant in the order book pending a matching counterparty or cancellation.
- Open Interest
- The aggregate notional value of all unsettled positions across a market. Elevated open interest signals robust participation and market depth.
- Slippage
- The variance between anticipated execution price and actual settlement price, stemming from inadequate market depth at the intended price level.
Probability & Statistics Terms
- Brier Score
- A metric quantifying forecast precision. Smaller values denote superior accuracy. Derived by averaging the squared deviations between your probability assignments and realised outcomes (0 or 1).
- Calibration
- An assessment of alignment between your probability estimates and empirical frequencies. Excellent calibration occurs when predictions assigned 70% confidence materialise 70% of the time.
- Expected Value (EV)
- The anticipated outcome when integrating all scenarios weighted by their respective likelihoods. Positive EV indicates a wager likely to generate returns across repeated instances.
- Kelly Criterion
- An algorithmic framework for determining position magnitude: f = (bp - q) / b, where b denotes net odds, p represents probability, and q equals 1-p.
- Superforecaster
- A market participant or analyst displaying sustained superior calibration across numerous forecasts, consistent with Philip Tetlock's academic framework.
Blockchain & Settlement Terms
- Polygon
- The Layer 2 scaling solution underpinning Polymarket and PolyGram operations. Delivers transaction costs below one cent and achieves finality within approximately two seconds.
- USDC (USD Coin)
- The collateralised stablecoin denominating prediction market settlements. Each unit maintains parity with one US dollar, issued by Circle and supported by US Treasury holdings.
- Smart Contract
- Autonomous programmes residing on the blockchain that custody prediction market capital and execute payout distributions upon market conclusion.
- Oracle
- A verified information provider supplying real-world event data to blockchain-based contracts. PolyGram integrates UMA's optimistic oracle mechanism for market resolution.
- Gas
- The compensation transferred to Polygon network validators for transaction processing. Polygon transactions typically incur fees below $0.01.
Market Types
- Binary Market
- A market structure featuring precisely two competing outcomes (YES/NO). This remains the predominant prediction market configuration.
- Categorical Market
- A market structure accommodating multiple distinct outcomes (e.g., "Which candidate will secure the Republican nomination in 2028?").
- Scalar Market
- A market where payouts adjust proportionally to the realised outcome magnitude (e.g., "What will the Bitcoin price be on December 31?").
- Conditional Market
- A market that activates and concludes only upon occurrence of a prerequisite event. The market becomes void if the precondition fails 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?
- A futures contract maintains a dynamic price reflecting an underlying asset. A prediction market delivers either $0 or $1 per share contingent on whether an event materialises.
- What does it mean when a market is "resolved YES"?
- The specified event has transpired, causing YES shares to yield $1 each. NO shares yield nothing. The blockchain automatically executes settlement through smart contract logic.