In this guide
Trading on prediction markets requires fluency in terminology spanning finance, mathematics, and distributed ledger systems. This comprehensive glossary presents 64 critical terms that every prediction market participant must grasp — covering execution mechanics, statistical foundations, blockchain infrastructure, and market structures.
Core Trading Terms
- Ask (Offer)
- The minimum price threshold at which a seller agrees to part with shares. When you acquire at prevailing market rates, you transact at the ask level.
- Bid
- The maximum price at which a buyer commits to purchasing shares. When you liquidate at prevailing market rates, you receive the bid level.
- Bid-Ask Spread
- The gap separating the highest bid from the lowest ask. Narrower spreads indicate stronger market depth and reduced transaction friction.
- CLOB (Central Limit Order Book)
- The matching engine deployed by Polymarket and PolyGram. Pairs incoming buy and sell orders according to price levels and temporal sequence.
- Conditional Token
- The smart-contract-based asset representing a YES or NO position within a prediction market. Resides natively on the Polygon chain.
- Fill Price
- The precise rate at which your transaction was completed. Often diverges from the quoted rate due to market movement between submission and settlement.
- FOK (Fill or Kill)
- An instruction type requiring complete immediate execution or automatic cancellation. Fractional completion is not permitted.
- Liquidity
- The capacity to transact large volumes without materially moving the price. Markets featuring substantial volume and compressed spreads demonstrate superior liquidity.
- Market Order
- A directive to transact at whatever price the market currently offers. Settles instantly but without price guarantees.
- Limit Order
- A directive to transact exclusively at a designated price level or more favourably. Waits within the order book until a counterparty arrives or the instruction lapses.
- Open Interest
- The aggregate notional exposure across all unresolved positions. Elevated open interest signals robust participation and market depth.
- Slippage
- The variance between anticipated execution price and actual settlement price, arising from inadequate depth at your target level.
Probability & Statistics Terms
- Brier Score
- A quantitative assessment of forecast precision. Smaller values denote superior accuracy. Computed as the average of squared deviations between your assigned probability and the realised outcome (0 or 1).
- Calibration
- The degree to which your probability assignments correspond to empirical frequencies. Excellent calibration means assertions made with 70% confidence materialise 70% of the time in practice.
- Expected Value (EV)
- The long-run average return, computed by weighting each scenario by its likelihood. Positive EV indicates a mathematically sound wager over extended periods.
- Kelly Criterion
- A sizing algorithm for position allocation: f = (bp - q) / b, in which b denotes net odds, p denotes likelihood, and q denotes 1-p.
- Superforecaster
- A participant exhibiting sustained above-median calibration performance across numerous forecasts, consistent with Philip Tetlock's empirical framework.
Blockchain & Settlement Terms
- Polygon
- The Layer 2 scaling solution hosting Polymarket and PolyGram operations. Delivers sub-penny transaction costs and approximately 2-second confirmation windows.
- USDC (USD Coin)
- The fiat-pegged token utilised for settlement across prediction markets. Maintains 1:1 equivalence with the US dollar and is issued by Circle with Treasury backing.
- Smart Contract
- Autonomous blockchain-resident logic that custodies market funds and orchestrates payout distribution upon market conclusion.
- Oracle
- An authoritative information provider that furnishes outcome data to blockchain contracts. Polymarket leverages UMA's optimistic oracle framework for market determination.
- Gas
- The compensation transferred to Polygon network validators for transaction inclusion. Polygon transactions typically incur sub-cent fees.
Market Types
- Binary Market
- A structure permitting precisely two mutually exclusive outcomes (YES/NO). The predominant architecture in prediction market design.
- Categorical Market
- A structure accommodating three or more distinct outcomes (e.g., "Which party will control the US Senate in 2026?").
- Scalar Market
- A structure where payouts adjust proportionally to the outcome magnitude (e.g., "What will BTC's closing price be on December 31?").
- Conditional Market
- A structure that settles only upon satisfaction of a prerequisite condition. Becomes void if the prerequisite fails to materialise.
FAQ
- Where can I learn more prediction market terminology?
- PolyGram's API documentation provides exhaustive technical definitions. Polymarket's support resources address operational terminology.
- What is the difference between a prediction market and a futures contract?
- A futures contract maintains a dynamic price reflecting an underlying asset's value. A prediction market delivers a binary $0 or $1 settlement contingent on event realisation.
- What does it mean when a market is "resolved YES"?
- The outcome transpired, resulting in YES share holders receiving $1 per share. NO share holders receive $0. Smart contracts execute settlement instantaneously.