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 order mechanics, position management, cryptographic infrastructure, and probability assessment frameworks.
Core Trading Terms
- Ask (Offer)
- The minimum price a seller will accept to part with shares. When you purchase at prevailing market rates, you transact at the ask level.
- Bid
- The maximum price a buyer will commit to acquire shares. When you liquidate shares at prevailing market rates, you receive the bid level.
- 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. Pairs incoming buy and sell orders according to price hierarchy and temporal sequence.
- Conditional Token
- The blockchain-resident token representing a YES or NO position in a prediction market. Held as encrypted assets within Polygon-based smart contracts.
- Fill Price
- The precise price your transaction completed at. Often diverges from the quoted price if market conditions shift between submission and completion.
- FOK (Fill or Kill)
- An order instruction requiring full immediate execution or automatic cancellation. Fractional execution is not permitted.
- Liquidity
- The capacity to transact volume without moving the price materially. Markets exhibiting substantial trading volume and compressed spreads possess superior liquidity.
- Market Order
- An instruction to transact at the prevailing best available rate. Completes instantly but at whatever price the market currently quotes.
- Limit Order
- An instruction to transact exclusively at a designated price threshold or more favourably. Waits in the order book until a counterparty matches or you withdraw it.
- Open Interest
- The cumulative notional value of all active unresolved positions across a market. Elevated open interest signals robust participation and depth.
- Slippage
- The variance between anticipated execution price and actual settlement price, typically arising from constrained liquidity at your target level.
Probability & Statistics Terms
- Brier Score
- A metric quantifying forecast precision. Smaller values denote superior performance. Computed as the average squared deviation between your stated probability and the realised outcome (either 0 or 1).
- Calibration
- The alignment between your probability statements and empirical frequencies. Properly calibrated forecasters see their 70% confidence events materialise approximately 70% of the time.
- Expected Value (EV)
- The probability-weighted average payoff across all possible scenarios. Positive EV signals a mathematically sound wager over extended timeframes.
- Kelly Criterion
- A sizing methodology for maximising long-term capital growth: f = (bp - q) / b, where b represents net odds, p denotes probability, and q equals 1-p.
- Superforecaster
- A participant demonstrating sustained superior calibration across numerous forecasts, as documented in Philip Tetlock's empirical studies.
Blockchain & Settlement Terms
- Polygon
- The secondary-layer blockchain infrastructure supporting Polymarket and PolyGram operations. Delivers sub-penny transaction costs and settlement confirmation within approximately two seconds.
- USDC (USD Coin)
- The dollar-pegged digital asset utilised for prediction market settlement. Maintains 1:1 equivalence with the US dollar, administered by Circle and collateralised by US government obligations.
- Smart Contract
- Autonomous executable instructions residing on the blockchain that custody prediction market capital and dispense winnings upon market conclusion.
- Oracle
- An authoritative information provider furnishing real-world event data to blockchain-based smart contracts. Polymarket leverages UMA's optimistic oracle mechanism for outcome determination.
- Gas
- The compensation remitted to Polygon network validators for transaction processing. On Polygon, charges typically remain beneath one cent per transaction.
Market Types
- Binary Market
- A market structure permitting precisely two competing outcomes (YES/NO). Represents the predominant architectural model for prediction markets.
- Categorical Market
- A market structure accommodating three or more distinct outcomes (for instance, "Which candidate will secure the 2028 Republican nomination?").
- Scalar Market
- A market structure where compensation adjusts proportionally with the outcome magnitude (such as, "At what price will BTC trade on December 31?").
- Conditional Market
- A market structure that settles exclusively upon satisfaction of a prerequisite condition. Terminates without payout if the condition fails to materialise.
FAQ
- Where can I learn more prediction market terminology?
- PolyGram's API documentation provides exhaustive technical definitions. Polymarket's support portal addresses consumer-oriented vocabulary.
- What is the difference between a prediction market and a futures contract?
- Futures contracts maintain dynamic pricing aligned to underlying asset movements. Prediction markets deliver binary $0 or $1 settlement contingent on event realisation.
- What does it mean when a market is "resolved YES"?
- The underlying event transpired, resulting in YES share holders receiving $1 per share. NO share holders receive $0. Payout execution occurs instantaneously through blockchain automation.