In this guide
The world of prediction market trading operates within a specialised lexicon encompassing elements from financial markets, quantitative analysis, and distributed ledger systems. This comprehensive glossary presents 64 critical terms that every prediction market participant ought to grasp — spanning execution mechanisms and portfolio safeguards through to cryptographic infrastructure and probability assessment methodologies.
Core Trading Terms
- Ask (Offer)
- The minimum price threshold at which a seller agrees to part with shares. When you acquire at market rates, you transact at the ask price.
- Bid
- The maximum price threshold at which a buyer commits to acquiring 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 greater market depth and reduced transaction expenses.
- CLOB (Central Limit Order Book)
- The matching engine deployed by Polymarket and PolyGram. It pairs pending purchase and sale orders according to price levels and temporal sequence.
- Conditional Token
- The blockchain-resident token representing a YES or NO position within a prediction market. These assets reside within smart contract systems on Polygon.
- Fill Price
- The precise rate at which your transaction was fulfilled. This may diverge from your quoted expectation if conditions shift between submission and settlement.
- FOK (Fill or Kill)
- An instruction type requiring instantaneous complete execution or automatic cancellation. Fractional completion is not permitted.
- Liquidity
- The capacity to transact substantial volumes without materially moving the quoted price. Markets exhibiting elevated turnover and compressed spreads demonstrate superior liquidity characteristics.
- Market Order
- A directive to transact at the prevailing best available quotation. Settlement occurs without delay, though at whatever terms the marketplace currently provides.
- Limit Order
- A directive to transact exclusively at a designated price point or more favourably. The instruction remains pending within the order book until a counterparty accepts or you withdraw it.
- Open Interest
- The aggregate notional value of all unresolved active positions across a market. Elevated open interest signals robust participation and improved depth.
- Slippage
- The variance between your anticipated execution rate and the actual rate realised, stemming from insufficient available supply at your target level.
Probability & Statistics Terms
- Brier Score
- A quantitative assessment of forecast precision. Reduced values signify superior performance. Computation involves the average squared deviation between your estimated likelihood and the realised outcome (either 0 or 1).
- Calibration
- An evaluation of the alignment between your probability assessments and empirical results. Proper calibration manifests when assertions made with 70% confidence materialise roughly 70% of the time.
- Expected Value (EV)
- The probable outcome when considering all scenarios, each weighted according to its likelihood. Positive EV indicates a wager that generates returns across extended timeframes.
- Kelly Criterion
- A mathematical framework for determining appropriate stake magnitudes: f = (bp - q) / b, where b represents net odds, p signifies probability, and q equals 1-p.
- Superforecaster
- An individual demonstrating persistently superior calibration performance across numerous predictions, consistent with Philip Tetlock's scholarly findings.
Blockchain & Settlement Terms
- Polygon
- The secondary-layer blockchain infrastructure supporting Polymarket and PolyGram operations. It delivers transaction costs beneath one cent and achieves settlement confirmation within approximately two seconds.
- USDC (USD Coin)
- The dollar-pegged digital asset utilised for prediction market settlement. Maintains 1:1 parity with the US dollar, administered by Circle and underpinned by United States Treasury holdings.
- Smart Contract
- Autonomous executable instructions residing on the blockchain that custody prediction market capital and orchestrate automated disbursement upon market conclusion.
- Oracle
- An authoritative information conduit furnishing real-world event confirmations to blockchain-based applications. Polymarket leverages UMA's optimistic verification mechanism for market settlement.
- Gas
- The compensation remitted to Polygon network participants for validating transactions. On Polygon, expenses typically remain under one cent per operation.
Market Types
- Binary Market
- A marketplace structure featuring precisely two possible results (YES/NO). This represents the predominant architecture within prediction market ecosystems.
- Categorical Market
- A marketplace structure encompassing multiple distinct possibilities (for instance, "Which candidate will secure the Republican nomination in 2028?").
- Scalar Market
- A marketplace where compensation adjusts proportionally with the outcome magnitude (such as "At what level will BTC trade on December 31?").
- Conditional Market
- A marketplace that finalises exclusively upon satisfaction of a prerequisite circumstance. The position terminates without payout if the prerequisite fails to materialise.
FAQ
- Where can I learn more prediction market terminology?
- PolyGram's API documentation furnishes exhaustive technical definitions. Polymarket's support resources address consumer-oriented language and concepts.
- What is the difference between a prediction market and a futures contract?
- A futures instrument maintains a fluctuating quotation reflecting an underlying commodity or financial asset. A prediction market delivers a fixed $0 or $1 settlement contingent upon whether an event materialises.
- What does it mean when a market is "resolved YES"?
- The forecasted circumstance transpired, resulting in YES positions receiving $1 per unit. NO positions receive nothing. Disbursement executes instantaneously through blockchain protocols.