In this guide
Trading within prediction markets employs specialised language rooted in derivatives trading, quantitative analysis, and distributed ledger systems. This glossary defines 64 critical terms that every prediction market participant should master — spanning execution mechanics, statistical foundations, blockchain infrastructure, and probabilistic reasoning frameworks.
Core Trading Terms
- Ask (Offer)
- The minimum price point at which a seller will part with shares. When you purchase at prevailing market rates, you transact at the ask.
- Bid
- The maximum price point at which a buyer will acquire shares. When you dispose of shares at prevailing market rates, you receive the bid.
- Bid-Ask Spread
- The gap separating the lowest ask from the highest bid. Compressed spreads indicate deeper liquidity and reduced friction costs.
- CLOB (Central Limit Order Book)
- The matching engine deployed by Polymarket and PolyGram. Pairs resting sell orders and buy orders according to price precedence and temporal sequence.
- Conditional Token
- The blockchain-native instrument representing a YES or NO position within a prediction market. Resides within smart contracts deployed on Polygon.
- Fill Price
- The precise rate at which your transaction completed. Often diverges from the quoted rate if market conditions shift between submission and settlement.
- FOK (Fill or Kill)
- An instruction type requiring immediate complete execution or automatic cancellation. Fractional completion is prohibited.
- Liquidity
- The capacity to transact sizable positions without materially moving the quoted price. Markets exhibiting high volume and narrow spreads demonstrate superior liquidity characteristics.
- Market Order
- An instruction to transact at whatever price the market currently quotes. Guarantees immediate settlement but offers no price protection.
- Limit Order
- An instruction to transact exclusively at your specified price threshold or more favourably. Waits within the order book until a counterparty matches 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 trading depth.
- Slippage
- The variance between your anticipated execution price and the actual settlement price, arising from inadequate depth at your target level.
Probability & Statistics Terms
- Brier Score
- A metric quantifying forecast precision. Smaller values denote superior performance. Computation involves the mean squared deviation separating your stated probability from the realised outcome (either 0 or 1).
- Calibration
- The alignment between your assigned probabilities and subsequent empirical frequencies. Excellent calibration manifests when assertions made with 70% confidence materialise 70% of the time.
- Expected Value (EV)
- The probability-weighted mean of all conceivable outcomes. Positive EV indicates a wager that compounds wealth across repeated trials.
- Kelly Criterion
- A sizing methodology for optimal capital allocation: f = (bp - q) / b, where b denotes net odds, p denotes probability, and q denotes 1-p.
- Superforecaster
- A participant demonstrating statistically superior calibration performance across numerous predictions, per Philip Tetlock's empirical framework.
Blockchain & Settlement Terms
- Polygon
- The Layer 2 execution environment hosting Polymarket and PolyGram. Delivers sub-penny transaction expenses and transaction finality within approximately 2 seconds.
- USDC (USD Coin)
- The dollar-pegged token utilised for settlement in prediction markets. Maintains 1:1 equivalence with the US dollar, issued by Circle with US Treasury backing.
- Smart Contract
- Autonomous programme logic deployed on distributed ledgers that custodies market capital and automatically distributes winnings upon market conclusion.
- Oracle
- An authoritative information provider furnishing real-world event data to blockchain programmes. Polymarket leverages UMA's optimistic attestation mechanism for market settlement.
- Gas
- The compensation remitted to Polygon network validators for transaction processing. Polygon transactions typically incur charges under one cent.
Market Types
- Binary Market
- A market structure featuring precisely two mutually exclusive outcomes (YES/NO). The predominant architecture within prediction market ecosystems.
- Categorical Market
- A market structure accommodating multiple distinct outcomes (e.g., "Which candidate will secure the Republican nomination in 2028?").
- Scalar Market
- A market where settlement amounts vary proportionally with the realised outcome (e.g., "What will Bitcoin's price equal on 31 December?").
- Conditional Market
- A market whose settlement depends upon a prerequisite event materialising. The market becomes void 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 vocabulary.
- What is the difference between a prediction market and a futures contract?
- Futures instruments maintain dynamic pricing tethered to an underlying reference asset. Prediction markets feature fixed binary payouts (either $0 or $1) contingent upon event resolution.
- What does it mean when a market is "resolved YES"?
- The underlying event transpired, causing YES positions to settle at $1 per unit. NO positions settle at $0 per unit. The smart contract executes settlement automatically.