In this guide
The world of prediction market trading employs specialised language rooted in financial markets, mathematical statistics, and distributed ledger systems. This comprehensive glossary defines 64 critical terms that active prediction market participants need to master — encompassing execution mechanisms, statistical concepts, blockchain infrastructure, and forecasting methodologies.
Core Trading Terms
- Ask (Offer)
- The minimum price at which a seller agrees to part with shares. When you purchase at the prevailing market rate, you transact at the ask price.
- Bid
- The maximum price a prospective buyer will commit to pay for shares. When you liquidate at the prevailing market rate, you receive the bid price.
- Bid-Ask Spread
- The gap separating the highest bid from the lowest ask. Narrower spreads indicate deeper liquidity and reduced transaction friction.
- CLOB (Central Limit Order Book)
- The matching engine powering both Polymarket and PolyGram. It pairs pending buy orders against pending sell orders according to price levels and temporal sequence.
- Conditional Token
- The blockchain-native asset representing a YES or NO position within a prediction market. These exist as smart contract-managed tokens on Polygon.
- Fill Price
- The precise price at which your transaction was completed. This frequently diverges from the quoted price if market conditions shift between submission and execution.
- FOK (Fill or Kill)
- An instruction that demands complete immediate execution or automatic cancellation with no partial settlements permitted.
- Liquidity
- The capacity to transact large volumes without materially moving the market price. Markets exhibiting substantial volume and compressed spreads demonstrate superior liquidity.
- Market Order
- An instruction to transact instantaneously at whatever prices the market currently offers. Prioritises speed over price certainty.
- Limit Order
- An instruction specifying a maximum (for purchases) or minimum (for sales) acceptable price. The order waits in the matching engine until a counterparty appears or you cancel it.
- Open Interest
- The aggregate notional exposure across all active, unresolved positions. Elevated open interest signals robust participation and tighter spreads.
- Slippage
- The variance between your anticipated execution price and the price you actually receive, typically stemming from inadequate depth at your target level.
Probability & Statistics Terms
- Brier Score
- A quantitative measure of forecasting precision. Computed as the average squared deviation between predicted probability and realised outcome (either 0 or 1), with lower values indicating superior accuracy.
- Calibration
- The degree to which your stated confidence aligns with empirical frequencies. Excellent calibration means forecasts assigned 70% likelihood materialise approximately 70% of the time.
- Expected Value (EV)
- The probability-weighted average return across all conceivable scenarios. Trades with positive EV generate profits when repeated over extended periods.
- Kelly Criterion
- A mathematical framework for determining optimal stake magnitude: f = (bp - q) / b, where b represents net odds, p denotes win probability, and q equals 1-p.
- Superforecaster
- An individual demonstrating persistently superior calibration across numerous predictions, consistent with Philip Tetlock's empirical research on forecasting excellence.
Blockchain & Settlement Terms
- Polygon
- The Layer 2 scaling solution supporting both Polymarket and PolyGram operations. It delivers negligible transaction expenses and rapid settlement finality within seconds.
- USDC (USD Coin)
- The reserve-backed stablecoin facilitating settlement across prediction markets. Each unit maintains parity with the US dollar, issued by Circle and collateralised by government securities.
- Smart Contract
- Autonomous programme code residing on the blockchain that manages market funds and executes payouts deterministically upon market conclusion.
- Oracle
- An authoritative external information source communicating real-world event outcomes to blockchain applications. Polymarket leverages UMA's optimistic oracle architecture for market settlement.
- Gas
- The computational fee compensating Polygon validators for transaction processing. Polygon transactions typically cost well under one cent.
Market Types
- Binary Market
- A market structure permitting precisely two mutually exclusive outcomes (YES/NO). This represents the foundational architecture for most prediction markets.
- Categorical Market
- A market accommodating three or more distinct outcomes (for instance, "Which candidate will secure the Republican nomination in 2028?").
- Scalar Market
- A market where payoff magnitude correlates with the realised outcome value (such as "What will Bitcoin's closing price be on 31 December?").
- Conditional Market
- A market whose resolution depends on a prerequisite event materialising. The market becomes void if the conditioning event fails to occur.
FAQ
- Where can I learn more prediction market terminology?
- PolyGram's API documentation provides thorough technical definitions. Polymarket's support resources address consumer-oriented language.
- What is the difference between a prediction market and a futures contract?
- Futures instruments maintain continuously fluctuating prices reflecting underlying asset valuations. Prediction markets settle to either $0 or $1 determined by whether a specified event transpires.
- What does it mean when a market is "resolved YES"?
- The underlying event has occurred, causing YES share holders to receive $1 per share whilst NO share holders receive nothing. The blockchain automatically processes all payouts through the market's smart contract.