In this guide
Trading in prediction markets requires familiarity with a specialised lexicon spanning financial instruments, mathematical concepts, and distributed ledger systems. This glossary presents 64 critical terms that every prediction market participant ought to grasp — encompassing execution mechanisms, portfolio safeguards, decentralised infrastructure, and analytical methodologies.
Core Trading Terms
- Ask (Offer)
- The minimum price at which a seller agrees to part with their shares. When you acquire shares at prevailing market rates, you transact at the ask.
- Bid
- The maximum price a prospective buyer will commit to for share acquisition. Upon selling at current market conditions, you obtain the bid.
- Bid-Ask Spread
- The gap separating the lowest ask from the highest bid. Narrower spreads signal greater market depth and reduced friction costs.
- CLOB (Central Limit Order Book)
- The order routing mechanism employed by Polymarket and PolyGram. It pairs outstanding purchase and sale orders according to price levels and temporal sequence.
- Conditional Token
- The blockchain-native embodiment of a YES or NO position within a prediction market. These assets reside within smart contracts deployed on Polygon.
- Fill Price
- The precise rate at which your transaction was finalised. This may diverge from the initially quoted rate should market conditions shift between submission and completion.
- FOK (Fill or Kill)
- An instruction type requiring immediate complete execution or automatic cancellation. Fractional completion is not permitted.
- Liquidity
- The capacity to transact substantial quantities without materially moving the market price. Markets exhibiting robust volume and compressed spreads demonstrate superior liquidity.
- Market Order
- An instruction to transact at whatever price the market currently provides. Settlement occurs instantly, though at the prevailing rate.
- Limit Order
- An instruction specifying a threshold price at which you consent to transact. The order remains queued until a counterparty agrees or you withdraw it.
- Open Interest
- The cumulative monetary exposure of all active, unsettled positions. Elevated open interest typically correlates with heightened trading engagement and depth.
- Slippage
- The variance between anticipated execution price and actual settlement price, stemming from inadequate available volume at your target level.
Probability & Statistics Terms
- Brier Score
- A quantitative assessment of forecast precision. Smaller values denote superior accuracy. Computation involves the average of squared deviations between your assigned likelihood and the realised outcome (0 or 1).
- Calibration
- The alignment between your assigned probabilities and empirical frequencies. Optimal calibration occurs when assertions made with 70% confidence materialise 70% of the time.
- Expected Value (EV)
- The probable outcome when considering all scenarios weighted according to their likelihoods. Positive EV signifies a wager that generates returns over extended periods.
- Kelly Criterion
- A mathematical framework governing ideal stake allocation: f = (bp - q) / b, whereby b represents net odds, p denotes probability, and q equals 1-p.
- Superforecaster
- An individual demonstrating sustained superior calibration performance across numerous forecasts, per Philip Tetlock's scholarly investigations.
Blockchain & Settlement Terms
- Polygon
- The secondary-layer blockchain infrastructure supporting Polymarket and PolyGram operations. It furnishes minimal transaction expenses and achieves settlement within approximately 2 seconds.
- USDC (USD Coin)
- The fiat-pegged digital asset utilised for prediction market payouts. One unit maintains parity with one US dollar, administered by Circle and underpinned by American government securities.
- Smart Contract
- Autonomous programme logic residing on the blockchain that custodies market funds and orchestrates automatic compensation distribution upon market conclusion.
- Oracle
- An authoritative information provider furnishing real-world event data to blockchain applications. Polymarket leverages UMA's optimistic oracle infrastructure for market determination.
- Gas
- The compensation remitted to Polygon network validators for transaction processing. On Polygon, this typically amounts to under one cent per operation.
Market Types
- Binary Market
- A market structure permitting precisely two possible resolutions (YES/NO). This remains the predominant architecture in prediction market ecosystems.
- 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 compensation adjusts proportionally to the outcome magnitude (e.g., "What will the Bitcoin price equal on the final day of the year?").
- Conditional Market
- A market whose resolution hinges upon satisfaction of a prerequisite condition. The market terminates without payout if the condition fails to materialise.
FAQ
- Where can I learn more prediction market terminology?
- PolyGram's API documentation furnishes comprehensive technical definitions. Polymarket's support resources address consumer-oriented language and concepts.
- What is the difference between a prediction market and a futures contract?
- Futures contracts maintain perpetual pricing mechanisms connected to underlying assets. Prediction markets deliver fixed $0 or $1 payouts contingent on whether specified events transpire.
- What does it mean when a market is "resolved YES"?
- The underlying event has transpired, resulting in YES share holders receiving $1 per share. NO share holders receive nothing. The blockchain automatically processes the distribution.