In this guide
Trading in prediction markets requires familiarity with terminology spanning finance, mathematics, and distributed ledger systems. This glossary presents 64 critical terms that every prediction market participant should grasp — encompassing order mechanics, position management, cryptographic infrastructure, and probability assessment methodologies.
Core Trading Terms
- Ask (Offer)
- The minimum amount a seller demands to part with shares. When you acquire shares at prevailing market rates, you transact at the ask price.
- Bid
- The maximum sum a purchaser will commit to acquire shares. When you liquidate shares at prevailing market rates, you receive the bid price.
- Bid-Ask Spread
- The gap separating the lowest ask from the highest bid. Narrower spreads signal deeper liquidity and reduced transaction expenses.
- CLOB (Central Limit Order Book)
- The matching engine utilised by Polymarket and PolyGram. It pairs pending buy and sell orders according to price levels and temporal sequence.
- Conditional Token
- The blockchain-based representation of a YES or NO position in a prediction market. These assets reside within smart contracts deployed on Polygon.
- Fill Price
- The precise rate at which your transaction was completed. This may diverge from the quoted rate if market conditions shift between submission and fulfilment.
- FOK (Fill or Kill)
- An instruction type requiring immediate complete execution or automatic cancellation. Fractional completion is not permitted.
- Liquidity
- The capacity to transact shares without materially shifting the market price. Markets exhibiting substantial volume and compressed spreads demonstrate superior liquidity.
- Market Order
- An instruction to transact at the most favourable available rate at that moment. Execution occurs instantaneously, though at whatever terms the market provides.
- Limit Order
- An instruction to transact exclusively at a designated rate or more favourably. The instruction waits in the order book until a counterparty matches it or you withdraw it.
- Open Interest
- The aggregate notional value of all active unresolved holdings in a market. Elevated open interest signals robust participation and depth.
- Slippage
- The variance between anticipated execution rate and actual execution rate, stemming from inadequate supply at your target price.
Probability & Statistics Terms
- Brier Score
- A metric quantifying forecast precision. Smaller values indicate superior performance. Computed as the average of squared deviations between your probability assessment and the realised outcome (0 or 1).
- Calibration
- An assessment of alignment between your probability forecasts and what truly materialises. Proper calibration means forecasts assigned 70% likelihood manifest 70% of the time.
- Expected Value (EV)
- The probable return when considering all scenarios weighted by their respective likelihoods. Positive EV indicates a wager with favourable long-term economics.
- Kelly Criterion
- A mathematical framework for determining ideal stake magnitude: f = (bp - q) / b, where b = net odds, p = probability, q = 1-p.
- Superforecaster
- An individual exhibiting consistently superior calibration performance across numerous forecasts, as documented in research by Philip Tetlock.
Blockchain & Settlement Terms
- Polygon
- The Layer 2 scaling solution supporting Polymarket and PolyGram operations. It delivers transaction costs under one cent and achieves settlement in roughly two seconds.
- USDC (USD Coin)
- The dollar-pegged token employed for settling prediction market transactions. Each unit maintains parity with the US dollar, with issuance managed by Circle and reserves held in US government securities.
- Smart Contract
- Autonomous programme code residing on the blockchain that manages prediction market capital and executes automatic payout distribution upon market conclusion.
- Oracle
- An authoritative information provider that communicates real-world event outcomes to blockchain-based programmes. Polymarket leverages UMA's optimistic oracle mechanism for market settlement.
- Gas
- The expense remitted to Polygon network operators for validating a transaction. On Polygon, this typically amounts to less than $0.01 per operation.
Market Types
- Binary Market
- A market structure presenting precisely two possible resolutions (YES/NO). This represents the predominant prediction market configuration.
- Categorical Market
- A market structure permitting multiple distinct outcomes (for instance, "Which candidate will secure the Republican nomination in 2028?").
- Scalar Market
- A market where compensation adjusts proportionally with the realised outcome value (for instance, "What will BTC's valuation be on December 31?").
- Conditional Market
- A market that settles only if a prerequisite event transpires. The market becomes void if the prerequisite fails to materialise.
FAQ
- Where can I learn more prediction market terminology?
- PolyGram's API documentation provides comprehensive technical definitions. Polymarket's support resources address concepts relevant to end users. For a broader overview, consult our platform guide.
- What is the difference between a prediction market and a futures contract?
- A futures contract maintains a dynamic price reflecting an underlying asset's value. A prediction market delivers a fixed $0 or $1 settlement contingent on whether an event materialises.
- What does it mean when a market is "resolved YES"?
- The specified event has occurred, causing YES positions to settle at $1 per unit. NO positions settle at $0 per unit. The blockchain automatically executes this settlement.