In this guide
Trading in prediction markets employs specialised language rooted in financial markets, quantitative analysis, and distributed ledger systems. This glossary presents 64 fundamental concepts every prediction market participant should grasp — encompassing execution mechanics, position management, cryptographic infrastructure, and probabilistic forecasting frameworks.
Core Trading Terms
- Ask (Offer)
- The minimum price at which a seller agrees to part with shares. When you purchase at the prevailing market rate, you transact at the ask.
- Bid
- The maximum price a buyer will commit to acquire shares. Upon selling at market rates, you realise the bid price.
- Bid-Ask Spread
- The gap separating the best ask from the best bid. Narrower spreads indicate greater market depth and reduced transaction friction.
- CLOB (Central Limit Order Book)
- The matching engine deployed by Polymarket and PolyGram. It pairs incoming buy and sell orders according to price priority and temporal sequence.
- Conditional Token
- The blockchain-based asset representing a YES or NO position within a prediction market. These instruments exist as smart contract holdings on Polygon.
- Fill Price
- The precise rate at which your transaction settled. This may diverge from the quoted rate if market 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 volumes whilst minimising price movement. Markets exhibiting high volume and compressed spreads demonstrate superior liquidity.
- Market Order
- A directive to transact immediately at whatever prices are currently available. Execution is instantaneous, though the actual rate depends on current conditions.
- Limit Order
- A directive to transact exclusively at a designated price threshold or more favourably. The order sits in the system awaiting a matching counterparty or cancellation.
- Open Interest
- The aggregate notional exposure of all active unresolved positions. Greater open interest signals heightened trading participation and market depth.
- Slippage
- The variance between anticipated execution rate and actual settlement rate, stemming from inadequate depth at the desired price level.
Probability & Statistics Terms
- Brier Score
- A metric quantifying forecast precision. Smaller values indicate superior performance. It represents the average squared deviation between your probability assignment and the realised outcome (0 or 1).
- Calibration
- The alignment between assigned probabilities and empirical frequencies. Properly calibrated forecasters see their 70% confidence predictions materialise roughly 70% of the time.
- Expected Value (EV)
- The long-run average return when all scenarios are weighted by their respective likelihoods. Positive EV indicates a wager with favourable expected returns.
- Kelly Criterion
- A sizing methodology for position allocation: f = (bp - q) / b, where b represents net odds, p denotes probability, and q equals 1-p.
- Superforecaster
- An individual demonstrating sustained superior calibration across numerous forecasts, consistent with Philip Tetlock's empirical research framework.
Blockchain & Settlement Terms
- Polygon
- The Layer 2 protocol underpinning Polymarket and PolyGram infrastructure. It delivers minimal transaction expenses and rapid confirmation finality within approximately 2 seconds.
- USDC (USD Coin)
- The dollar-pegged digital asset facilitating prediction market settlements. Each unit maintains 1:1 equivalence with the US dollar, issued by Circle with backing from US Treasury instruments.
- Smart Contract
- Autonomous programme logic residing on the blockchain, governing capital custody and orchestrating automated payout distribution upon market conclusion.
- Oracle
- An authoritative information provider supplying real-world event data to blockchain applications. Polymarket leverages UMA's optimistic attestation mechanism for market settlement.
- Gas
- The compensation required by Polygon validators to process and validate transactions. On Polygon, this typically remains below one cent per operation.
Market Types
- Binary Market
- A structure permitting precisely two possible resolutions (YES/NO). This represents the predominant prediction market architecture.
- Categorical Market
- A framework accommodating multiple distinct outcomes (for instance, "Which candidate will secure the Republican nomination in 2028?").
- Scalar Market
- A mechanism where compensation adjusts proportionally to the realised outcome value (such as "At what price will BTC trade on December 31?").
- Conditional Market
- A structure that settles exclusively upon satisfaction of a prerequisite condition. The market becomes void if that condition fails to materialise.
FAQ
- Where can I learn more prediction market terminology?
- PolyGram's API documentation provides exhaustive 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 continuously fluctuating prices reflecting underlying asset valuations. Prediction markets culminate in discrete $0 or $1 payouts contingent upon event realisation.
- What does it mean when a market is "resolved YES"?
- The anticipated event has transpired, resulting in YES holders receiving $1 per share whilst NO holders receive nothing. The blockchain automatically executes this settlement.