In this guide
Trading on prediction markets requires fluency in terminology spanning finance, mathematics, and distributed ledger systems. This glossary defines 64 critical terms that every prediction market participant should master — encompassing execution mechanics, statistical foundations, blockchain infrastructure, and outcome forecasting frameworks.
Core Trading Terms
- Ask (Offer)
- The minimum price a seller demands to part with shares. When you purchase at market, you transact at the ask price.
- Bid
- The maximum price a buyer will commit to acquire shares. When you liquidate at market, you receive the bid price.
- Bid-Ask Spread
- The gap separating the best bid from the best ask. Narrower spreads signal deeper liquidity and reduced transaction friction.
- CLOB (Central Limit Order Book)
- The matching engine powering Polymarket and PolyGram. Pairs incoming buy and sell orders according to price level and temporal sequence.
- Conditional Token
- The smart contract-backed digital representation of a YES or NO position in a prediction market. Resides natively on Polygon.
- Fill Price
- The precise price your transaction settled at. Often diverges from the quoted price if market conditions shift between submission and completion.
- FOK (Fill or Kill)
- An instruction to execute an entire order instantaneously or reject it entirely. Fractional execution is prohibited.
- Liquidity
- The capacity to transact large volumes without materially moving the price. Markets exhibiting robust volume and compressed spreads provide superior liquidity.
- Market Order
- An instruction to transact immediately at prevailing market rates. Guarantees execution but offers no price certainty.
- Limit Order
- An instruction to transact exclusively at a stipulated price threshold or more favourably. Waits in the order book until matched or withdrawn.
- Open Interest
- The cumulative notional value of all active unresolved positions. Elevated open interest correlates with trading depth and market participation.
- Slippage
- The variance between anticipated execution price and actual settlement price, stemming from inadequate depth at the target level.
Probability & Statistics Terms
- Brier Score
- A metric quantifying forecast precision. Smaller values denote superior accuracy. Computed as the average squared deviation between estimated likelihood and realised outcome (0 or 1).
- Calibration
- The alignment between assigned probabilities and empirical frequencies. Excellent calibration means assertions made with 70% confidence materialise approximately 70% of the time.
- Expected Value (EV)
- The weighted mean outcome across all scenarios. Positive EV indicates a wager with favourable long-term mathematics.
- Kelly Criterion
- A position-sizing algorithm maximising growth: f = (bp - q) / b, where b denotes net odds, p denotes probability, and q denotes 1-p.
- Superforecaster
- A participant demonstrating persistently superior calibration across numerous predictions, consistent with Philip Tetlock's empirical framework.
Blockchain & Settlement Terms
- Polygon
- The Layer 2 scaling solution underpinning Polymarket and PolyGram. Delivers sub-penny transaction costs and rapid ~2 second settlement.
- USDC (USD Coin)
- The collateralised stablecoin facilitating prediction market transactions. Maintains 1:1 parity with the US dollar, administered by Circle and secured by Treasury holdings.
- Smart Contract
- Autonomous blockchain-resident code managing market escrow and orchestrating automated payouts upon market conclusion.
- Oracle
- A verified information conduit supplying real-world event data to on-chain systems. Polymarket leverages UMA's optimistic oracle architecture for market settlement.
- Gas
- The compensation remitted to Polygon validators for transaction processing. On Polygon, charges typically remain under $0.01 per operation.
Market Types
- Binary Market
- A market structure featuring precisely two mutually exclusive outcomes (YES/NO). The predominant prediction market configuration.
- Categorical Market
- A market structure permitting three or more distinct outcomes (e.g., "Which candidate secures the 2028 Republican nomination?").
- Scalar Market
- A market where payoff magnitude corresponds to the outcome magnitude (e.g., "What will Bitcoin's value be on 31 December?").
- Conditional Market
- A market whose resolution hinges upon a prerequisite event materialising. Becomes null if the prerequisite fails to occur.
FAQ
- Where can I learn more prediction market terminology?
- PolyGram's API documentation provides comprehensive technical definitions. Polymarket's support resources address consumer-oriented terminology.
- What is the difference between a prediction market and a futures contract?
- Futures contracts maintain dynamic pricing reflecting an underlying asset's value. Prediction markets deliver a fixed $0 or $1 settlement contingent on event realisation.
- What does it mean when a market is "resolved YES"?
- The underlying event transpired, causing YES positions to settle at $1 per share. NO positions settle at $0. The blockchain executes settlement mechanically.