Trading in prediction markets requires familiarity with terminology spanning finance, mathematics, and distributed ledger systems. This comprehensive glossary defines 64 critical terms that prediction market participants ought to grasp — covering everything from execution mechanics and portfolio safeguards to decentralised infrastructure and probability assessment methodologies.
Core Trading Terms
- Ask (Offer)
- The minimum amount a seller demands to part with their shares. When you purchase at prevailing market rates, you transact at this ask price.
- Bid
- The maximum sum a buyer will commit to acquire shares. When you liquidate your position at prevailing market rates, you obtain this bid price.
- Bid-Ask Spread
- The gap separating the highest bid from the lowest ask. Narrower spreads indicate greater market depth and reduced transaction expenses.
- CLOB (Central Limit Order Book)
- The order-matching infrastructure employed by Polymarket and PolyGram. It pairs incoming buy and sell orders according to price levels and temporal sequence.
- Conditional Token
- The blockchain-based embodiment of a YES or NO position in a prediction market. These assets reside within smart contracts deployed on Polygon.
- Fill Price
- The precise rate at which your transaction completed. This may diverge from your anticipated price should market conditions shift between submission and fulfilment.
- FOK (Fill or Kill)
- An instruction that demands complete execution on the spot or automatic rejection. Fractional completion is not permitted.
- Liquidity
- The capability to transact substantial quantities without materially shifting market rates. Markets exhibiting high volume and compressed spreads demonstrate superior liquidity.
- Market Order
- An instruction to transact immediately at whatever prices currently prevail. Execution happens straight away, though at whatever the marketplace provides.
- Limit Order
- An instruction to transact exclusively at your designated threshold or more favourably. The order remains queued until a matching counterparty emerges or you withdraw it.
- Open Interest
- The aggregate notional value of all active, unresolved holdings within a market. Elevated open interest signals robust participation and market depth.
- Slippage
- The variance between your anticipated execution rate and the actual rate received, stemming from inadequate depth at your desired price point.
Probability & Statistics Terms
- Brier Score
- A metric quantifying forecast precision. Smaller values signify superior accuracy. Computed as the average of squared deviations between your estimated likelihood and the realised outcome (either 0 or 1).
- Calibration
- The degree to which your probability assessments correspond with empirical frequencies. Strong calibration manifests when assertions made with 70% confidence materialise roughly 70% of the time.
- Expected Value (EV)
- The probability-weighted mean result across all conceivable scenarios. Positive EV indicates a wager that generates returns over extended periods.
- Kelly Criterion
- A mathematical framework for determining optimal stake magnitudes: f = (bp - q) / b, where b represents net odds, p denotes your probability estimate, and q equals 1-p.
- Superforecaster
- An individual demonstrating persistently superior calibration performance across numerous forecasts, consistent with Philip Tetlock's scholarly findings.
Blockchain & Settlement Terms
- Polygon
- The secondary-layer blockchain infrastructure supporting Polymarket and PolyGram operations. It delivers transaction expenses measured in fractions of a cent and achieves settlement within approximately 2 seconds.
- USDC (USD Coin)
- The dollar-pegged digital currency employed for prediction market settlements. Each unit maintains parity with the US dollar and is issued by Circle with backing from US government debt instruments.
- Smart Contract
- Autonomous programmes residing on blockchains that custody prediction market capital and autonomously allocate winnings upon market conclusion.
- Oracle
- An authoritative information provider that communicates real-world event results to blockchain programmes. Polymarket leverages UMA's optimistic oracle mechanism for determining outcomes.
- Gas
- The compensation remitted to Polygon network participants for validating transactions. On Polygon, these expenses typically remain under one cent.
Market Types
- Binary Market
- A market structure presenting precisely two possible conclusions (YES/NO). This represents the predominant prediction market configuration.
- Categorical Market
- A market structure accommodating multiple distinct possibilities (for instance, "Which candidate will secure the Republican nomination in 2028?").
- Scalar Market
- A market construction where compensation correlates with the magnitude of the realised outcome (for example, "At what level will BTC trade on the final day of the year?").
- Conditional Market
- A market that settles exclusively upon satisfaction of a prerequisite circumstance. The market becomes void should the prerequisite fail to materialise.
FAQ
- Where can I learn more prediction market terminology?
- PolyGram's API documentation provides exhaustive treatment of technical vocabulary. Polymarket's support resources address consumer-oriented definitions.
- What is the difference between a prediction market and a futures contract?
- A futures contract maintains an evolving valuation reflecting an underlying commodity. A prediction market delivers either $0 or $1 contingent upon whether an event transpires.
- What does it mean when a market is "resolved YES"?
- The forecasted event materialised, causing YES holdings to yield $1 per unit. NO holdings yield nothing. The blockchain programme handles payout distribution instantaneously.