Trading on prediction markets requires familiarity with terminology spanning finance, data science, and distributed ledger systems. This glossary defines 64 critical terms that prediction market participants need to grasp — covering order mechanics, position sizing, blockchain infrastructure, and forecasting methodology.
Core Trading Terms
- Ask (Offer)
- The minimum price a seller will accept to part with shares. When you acquire at market, you transact at the ask price.
- Bid
- The maximum price a buyer will pay to acquire shares. When you liquidate at market, you receive the bid price.
- Bid-Ask Spread
- The gap separating the best bid and best ask quotations. Narrower spreads signal 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 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 rate at which your transaction completed. Often diverges from the quoted rate if conditions shift between submission and completion.
- FOK (Fill or Kill)
- An instruction requiring immediate complete execution or automatic cancellation. Fractional 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
- An instruction to transact at prevailing market rates without delay. Fills instantaneously at whatever prices the market currently quotes.
- Limit Order
- An instruction to transact exclusively at your specified threshold or more favourably. Waits in the order book for a matching counterparty or withdrawal.
- Open Interest
- The aggregate notional exposure of all active unresolved positions. Elevated open interest signals robust participation and depth.
- Slippage
- The variance between anticipated execution rate and actual settlement rate, arising from inadequate supply at the target level.
Probability & Statistics Terms
- Brier Score
- A metric quantifying forecast precision. Smaller values indicate superior accuracy. Determined by averaging the squared deviations between your stated probability and the realised outcome (0 or 1).
- Calibration
- The alignment between your probability statements and empirical frequencies. Properly calibrated forecasters find that events they assess at 70% confidence materialise roughly 70% of the time.
- Expected Value (EV)
- The probability-weighted mean of all conceivable results. Positive EV indicates a wager that generates profit across repeated instances.
- Kelly Criterion
- An algorithmic method for determining ideal stake magnitude: f = (bp - q) / b, wherein b denotes net odds, p signifies probability, and q equals 1-p.
- Superforecaster
- A participant demonstrating persistently superior calibration across numerous forecasts, consistent with frameworks developed by Philip Tetlock.
Blockchain & Settlement Terms
- Polygon
- The Layer 2 execution environment supporting Polymarket and PolyGram operations. Delivers transaction costs under one cent and achieves finality within approximately two seconds.
- USDC (USD Coin)
- The dollar-pegged digital asset utilised for settling prediction market transactions. Maintains 1:1 parity with USD, administered by Circle and collateralised by US government securities.
- Smart Contract
- Autonomous programme logic deployed on the blockchain that custodies prediction market capital and executes payout distribution upon market conclusion.
- Oracle
- An authoritative information provider supplying real-world event data to blockchain-based applications. Polymarket leverages UMA's optimistic oracle mechanism for market settlement.
- Gas
- The compensation remitted to Polygon validators for transaction processing. On Polygon, costs typically remain beneath $0.01 per operation.
Market Types
- Binary Market
- A market structure permitting precisely two alternative resolutions (YES/NO). This represents the predominant prediction market configuration.
- 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 payoff magnitude correlates with the outcome metric (such as, "What will the BTC exchange rate equal on December 31?").
- Conditional Market
- A market structure that settles exclusively upon satisfaction of a prerequisite condition. Becomes void if the prerequisite fails to materialise.
FAQ
- Where can I learn more prediction market terminology?
- PolyGram's API documentation provides thorough explanations of technical vocabulary. Polymarket's support resources address consumer-oriented definitions.
- What is the difference between a prediction market and a futures contract?
- Futures contracts maintain fluctuating valuations anchored to underlying assets. Prediction markets deliver fixed $0 or $1 settlements contingent on whether specified events materialise.
- What does it mean when a market is "resolved YES"?
- The underlying event has occurred, causing YES share holders to receive $1 per share. NO share holders receive $0. Disbursement transpires mechanically through the smart contract infrastructure.