In this guide
Trading in prediction markets requires familiarity with terminology spanning finance, mathematics, and distributed ledger systems. This comprehensive glossary presents 64 critical terms that every prediction market participant should grasp — encompassing execution mechanics, statistical concepts, blockchain infrastructure, and forecasting methodology.
Core Trading Terms
- Ask (Offer)
- The minimum price a seller will accept for their shares. When you purchase at market rates, you transact at this ask price.
- Bid
- The maximum price a buyer will offer for shares. When you sell at market rates, you receive this bid price.
- Bid-Ask Spread
- The gap separating the best bid from the best ask. Narrower spreads indicate deeper liquidity 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 level and temporal sequence.
- Conditional Token
- The blockchain-native asset representing a YES or NO position within a prediction market. These tokens reside within smart contracts deployed on Polygon.
- Fill Price
- The precise price your order was executed at. This may diverge from your quoted price if market conditions shift between submission and completion.
- FOK (Fill or Kill)
- An instruction type requiring complete immediate execution or automatic cancellation. Fractional executions are prohibited.
- Liquidity
- The capacity to transact large volumes without materially shifting the market price. Deep, active markets with compressed spreads demonstrate superior liquidity.
- Market Order
- An instruction to transact instantly at prevailing market rates. Execution is assured but the price is determined by current supply and demand.
- Limit Order
- An instruction to transact only at a designated price threshold or more favourably. The order waits in the book until a counterparty matches it or you withdraw it.
- Open Interest
- The aggregate notional value of all active, unresolved positions across a market. Elevated open interest signals robust participation and depth.
- Slippage
- The variance between anticipated execution price and actual settlement price, typically arising from inadequate liquidity at your target level.
Probability & Statistics Terms
- Brier Score
- A metric quantifying forecast precision. Smaller values denote superior accuracy. Computation involves the mean squared deviation between your stated probability and the realised outcome (either 0 or 1).
- Calibration
- The alignment between your assigned probabilities and empirical occurrence rates. Excellent calibration means predictions marked at 70% confidence materialise approximately 70% of the time.
- Expected Value (EV)
- The anticipated result when considering all scenarios weighted by their respective likelihoods. Positive EV indicates a wager with profitable long-run characteristics.
- Kelly Criterion
- A mathematical framework for determining appropriate stake magnitudes: f = (bp - q) / b, where b denotes net odds, p denotes your probability estimate, and q equals 1-p.
- Superforecaster
- A participant demonstrating persistently superior calibration performance across numerous forecasts, as documented in Philip Tetlock's scholarly work.
Blockchain & Settlement Terms
- Polygon
- The Layer 2 scaling solution hosting Polymarket and PolyGram. It delivers minimal transaction expenses (sub-cent range) alongside rapid settlement (approximately 2 seconds).
- USDC (USD Coin)
- The collateralised dollar token utilised for market settlement and payouts. One USDC maintains parity with one USD, issued by Circle with backing from US government securities.
- Smart Contract
- Autonomous programme code residing on blockchains that manages market funds and executes payouts deterministically upon market conclusion.
- Oracle
- An authoritative information provider supplying real-world event data to blockchain systems. Polymarket leverages UMA's optimistic oracle architecture for market determination.
- Gas
- The compensation paid to network validators for transaction processing. On Polygon, these costs typically remain below one cent per operation.
Market Types
- Binary Market
- A market structure permitting precisely two possible resolutions (YES/NO). This represents the predominant prediction market configuration.
- Categorical Market
- A market structure accommodating three or more distinct outcomes (for instance, "Which candidate will secure the 2028 Republican nomination?").
- Scalar Market
- A market structure where compensation adjusts proportionally with the outcome magnitude (for example, "What will Bitcoin's price reach by year-end?").
- Conditional Market
- A market structure that settles exclusively if a prerequisite event transpires. The market becomes void should the prerequisite fail to materialise.
FAQ
- Where can I learn more prediction market terminology?
- PolyGram's API documentation provides thorough explanations of technical vocabulary. Polymarket's support resources address operational terminology for end-users.
- What is the difference between a prediction market and a futures contract?
- Futures contracts maintain continuously-quoted prices reflecting underlying asset valuations. Prediction markets deliver fixed payouts ($0 or $1) determined by event occurrence.
- What does it mean when a market is "resolved YES"?
- The underlying event materialised, causing YES positions to yield $1 per share. NO positions yield nothing. The blockchain automatically processes settlement.