In this guide
Trading in prediction markets requires familiarity with terminology rooted in financial markets, quantitative analysis, and distributed ledger systems. This glossary presents 64 critical terms that every prediction market participant ought to grasp — encompassing execution mechanics, statistical foundations, blockchain infrastructure, and probabilistic forecasting principles.
Core Trading Terms
- Ask (Offer)
- The minimum price threshold at which a seller agrees to part with shares. When you acquire at prevailing market rates, you transact at the ask price.
- Bid
- The maximum price a prospective buyer will commit to purchasing shares. When you liquidate at market rates, you obtain the bid price.
- Bid-Ask Spread
- The gap separating the lowest ask from the highest bid. Narrower spreads indicate deeper liquidity and reduced transaction friction.
- CLOB (Central Limit Order Book)
- The order-matching infrastructure deployed by Polymarket and PolyGram. Pairs incoming buy and sell orders according to price level and temporal sequence.
- Conditional Token
- The blockchain-native instrument representing a YES or NO position within a prediction market. These tokens reside within smart contracts deployed on Polygon.
- Fill Price
- The precise rate at which your transaction completed. This may diverge from the quoted rate if market conditions shift between submission and completion.
- FOK (Fill or Kill)
- An instruction that demands complete execution at once or automatic cancellation. Fractional completion is not permitted.
- Liquidity
- The capacity to transact substantial volumes without materially moving the price. Markets characterised by high volume and compressed spreads exhibit superior liquidity.
- Market Order
- An instruction to transact immediately at the prevailing best price. Execution occurs instantly, though at whatever rate the market currently offers.
- Limit Order
- An instruction to transact exclusively at a designated price level or more favourably. The order persists in the book until a counterparty matches it or you withdraw it.
- Open Interest
- The cumulative notional exposure of all unresolved positions across a market. Elevated open interest signals robust participation and market depth.
- Slippage
- The variance between anticipated execution price and actual settlement price, arising from constrained depth at your target level.
Probability & Statistics Terms
- Brier Score
- A quantitative assessment of forecasting precision. Smaller values denote superior performance. Computation involves averaging the squared deviations between your probability assessment and the realised outcome (either 0 or 1).
- Calibration
- An evaluation of how faithfully your probability assignments correspond to empirical frequencies. Excellent calibration manifests when assertions made at 70% confidence materialise roughly 70% of the time.
- Expected Value (EV)
- The probability-weighted mean outcome across all potential scenarios. Positive EV indicates an economically rational wager from a long-term perspective.
- Kelly Criterion
- A mathematical framework governing stake allocation for optimal growth: f = (bp - q) / b, where b denotes net odds, p represents your probability, and q equals 1-p.
- Superforecaster
- An individual demonstrating sustained superior calibration performance across numerous predictions, as documented in Philip Tetlock's empirical investigations.
Blockchain & Settlement Terms
- Polygon
- The Layer 2 scaling solution powering PolyGram and Polymarket operations. Delivers transaction costs measured in fractions of a cent and achieves settlement finality within seconds.
- USDC (USD Coin)
- The reserve-backed stablecoin utilised for settling prediction market transactions. Each unit maintains parity with one US dollar, with Circle serving as the issuer and US Treasury securities providing backing.
- Smart Contract
- Autonomous programme logic residing on the blockchain that custodies market funds and orchestrates payout distribution upon market conclusion.
- Oracle
- An authoritative information conduit transmitting real-world event data to blockchain-based contracts. PolyGram leverages UMA's optimistic oracle architecture for market resolution.
- Gas
- The compensation provided to Polygon validators for transaction processing. Polygon typically charges under one cent per transaction.
Market Types
- Binary Market
- A market structure featuring precisely two mutually exclusive outcomes (YES or NO). This remains the predominant prediction market configuration.
- Categorical Market
- A market accommodating three or more distinct possible outcomes (for instance, "Which candidate will secure the Republican nomination in 2028?").
- Scalar Market
- A market where compensation varies proportionally with the outcome magnitude (such as "At what level will Bitcoin trade on the final day of the year?").
- Conditional Market
- A market whose resolution hinges upon the occurrence of a prerequisite event. The market terminates without payout if the prerequisite 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 vocabulary.
- What is the difference between a prediction market and a futures contract?
- Futures instruments maintain a dynamic price reflecting an underlying asset's value. Prediction markets feature binary payoff structures delivering either $0 or $1 contingent on event realisation.
- What does it mean when a market is "resolved YES"?
- The underlying event transpired, causing YES shares to remunerate at $1 per unit. NO shares yield nothing. The blockchain infrastructure executes settlement automatically.