In this guide
Engaging with prediction markets requires familiarity with terminology spanning finance, mathematics, and distributed ledger systems. This glossary presents 64 core terms that every prediction market participant should grasp — encompassing execution mechanics, statistical foundations, blockchain infrastructure, and market classification.
Core Trading Terms
- Ask (Offer)
- The minimum amount a seller will accept to transfer shares. When you purchase at prevailing market rates, you transact at this price.
- Bid
- The maximum amount a buyer will commit to acquire shares. When you liquidate at prevailing market rates, you receive this price.
- Bid-Ask Spread
- The gap separating the lowest ask from the highest bid. Narrower spreads signal deeper liquidity and reduced transaction friction.
- CLOB (Central Limit Order Book)
- The matching engine employed by Polymarket and PolyGram. It pairs pending buy orders with pending sell orders using price-time priority rules.
- Conditional Token
- An on-chain asset representing a YES or NO position within a prediction market. These tokens reside within smart contracts deployed on Polygon.
- Fill Price
- The precise rate your transaction settled at. This may diverge from the quoted rate if market conditions shift between submission and completion.
- FOK (Fill or Kill)
- An instruction requiring immediate full execution or automatic cancellation. Partial completion is not permitted.
- Liquidity
- The capacity to enter or exit positions without substantially moving the quoted price. Markets exhibiting high volume and compressed spreads demonstrate superior liquidity.
- Market Order
- A directive to transact immediately at whatever prices the market currently displays. Execution is swift, though the exact rate is not predetermined.
- Limit Order
- A directive to transact exclusively at a designated price level 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 unresolved positions across a market. Elevated open interest correlates with robust participation and tighter spreads.
- Slippage
- The divergence between anticipated execution rate and actual rate, stemming from insufficient depth at your target price level.
Probability & Statistics Terms
- Brier Score
- A metric quantifying forecast precision. Smaller values indicate superior accuracy. It represents the average squared deviation between your stated probability and the realised outcome (either 0 or 1).
- Calibration
- The alignment between your stated confidence levels and empirical frequencies. Excellent calibration manifests when forecasts assigned 70% confidence materialise roughly 70% of the time.
- Expected Value (EV)
- The probability-weighted average of all possible results. Positive EV indicates a wager with favourable long-term returns.
- Kelly Criterion
- A sizing methodology for optimal stake allocation: f = (bp - q) / b, with b representing net odds, p representing your probability estimate, and q equalling 1-p.
- Superforecaster
- An individual demonstrating persistently superior calibration across numerous forecasts, consistent with Philip Tetlock's empirical framework.
Blockchain & Settlement Terms
- Polygon
- The Layer 2 scaling solution supporting Polymarket and PolyGram operations. It delivers transaction costs measured in fractions of a cent alongside ~2 second confirmation times.
- USDC (USD Coin)
- The collateralised stablecoin underpinning prediction market settlements. Each unit maintains 1:1 parity with the US dollar, with issuance managed by Circle and reserves held in Treasury instruments.
- Smart Contract
- Autonomous code residing on distributed ledgers that custodies market funds and orchestrates automatic payout distribution upon market conclusion.
- Oracle
- An authoritative information provider supplying verified real-world facts to blockchain-based applications. Polymarket leverages UMA's optimistic oracle mechanism for market determination.
- Gas
- The compensation paid to Polygon network participants for validating transactions. On Polygon, this typically amounts to less than $0.01 per transaction.
Market Types
- Binary Market
- A market structure featuring precisely two mutually exclusive outcomes (YES or NO). This remains the predominant prediction market configuration.
- Categorical Market
- A market structure permitting three or more distinct outcomes (for example, "Which candidate will secure the 2028 Republican nomination?").
- Scalar Market
- A market structure where compensation adjusts proportionally with the outcome value (for instance, "What will the Bitcoin exchange rate equal on 31 December?").
- Conditional Market
- A market structure that finalises exclusively if a prerequisite event transpires. The market becomes void should the prerequisite fail to occur.
FAQ
- Where can I learn more prediction market terminology?
- PolyGram's API documentation provides exhaustive technical reference material. Polymarket's support resources address consumer-oriented definitions.
- What is the difference between a prediction market and a futures contract?
- Futures contracts maintain constantly-updating valuations reflecting underlying asset movements. Prediction markets distribute either $0 or $1 per share contingent upon whether the specified event materialises.
- What does it mean when a market is "resolved YES"?
- The forecasted event has occurred, resulting in YES share holders receiving $1 per share. NO share holders receive $0. The blockchain automatically executes these distributions.