In this guide
Engaging in prediction market trading requires familiarity with terminology spanning finance, quantitative analysis, and distributed ledger systems. This comprehensive glossary presents 64 critical terms that every prediction market participant should grasp — encompassing execution mechanics, position management, statistical foundations, and blockchain-native concepts.
Core Trading Terms
- Ask (Offer)
- The minimum price at which a seller agrees to part with shares. When purchasing at prevailing market rates, you transact at the ask level.
- Bid
- The maximum price a prospective buyer will commit to for shares. When liquidating at prevailing market rates, you receive the bid level.
- Bid-Ask Spread
- The gap separating the best ask from the best bid. Narrower spreads signal deeper liquidity and reduced transaction friction.
- CLOB (Central Limit Order Book)
- The matching engine deployed by Polymarket and PolyGram. It pairs standing buy and sell orders according to price precedence and temporal sequence.
- Conditional Token
- The blockchain-native asset representing a YES or NO position in a prediction market. These are maintained within smart contracts deployed on Polygon.
- Fill Price
- The precise rate at which your transaction was completed. This may diverge from the quoted rate if market conditions shift between submission and settlement.
- FOK (Fill or Kill)
- An instruction type requiring complete execution at the moment of submission, or immediate cancellation if unfeasible. Fractional completion is not permitted.
- Liquidity
- The capacity to enter or exit positions without materially moving the price. Markets exhibiting substantial volume and compressed spreads demonstrate superior liquidity.
- Market Order
- An instruction to transact at the most favourable price currently available. Execution occurs instantaneously, though at whatever terms the market provides.
- Limit Order
- An instruction to transact exclusively at a designated price threshold or more favourably. The order persists in the book until matched or withdrawn.
- Open Interest
- The aggregate notional value of all unresolved outstanding contracts in a market. Elevated open interest correlates with heightened participation and depth.
- Slippage
- The variance between anticipated execution price and actual settlement price, stemming from inadequate depth at the intended price level.
Probability & Statistics Terms
- Brier Score
- A metric quantifying forecasting precision. Smaller values indicate superior performance. Computation involves the mean squared deviation between estimated probability and realised outcome (either 0 or 1).
- Calibration
- An assessment of alignment between stated probability estimates and empirical frequencies. Properly calibrated forecasters see their 70% confidence predictions materialise approximately 70% of the time.
- Expected Value (EV)
- The probabilistically-weighted mean result across all potential scenarios. Trades exhibiting positive EV generate profit when repeated across sufficient iterations.
- Kelly Criterion
- A mathematical framework for determining ideal position magnitude: f = (bp - q) / b, where b represents net odds, p denotes probability, and q equals 1-p.
- Superforecaster
- A participant demonstrating sustained above-median calibration performance across numerous forecasts, per research methodologies established by Philip Tetlock.
Blockchain & Settlement Terms
- Polygon
- The Layer 2 execution environment supporting Polymarket and PolyGram infrastructure. It delivers sub-penny transaction expenses and approximately 2 second settlement confirmation.
- USDC (USD Coin)
- The fiat-pegged token utilised for market settlement and payouts. Maintains 1:1 parity with the US dollar, administered by Circle and collateralised by US government debt instruments.
- Smart Contract
- Autonomous programme logic residing on-chain that custodies market funds and executes payout distribution upon market conclusion.
- Oracle
- A verified information provider furnishing real-world event data to blockchain-resident contracts. Polymarket leverages UMA's optimistic oracle architecture for outcome determination.
- Gas
- The compensation remitted to Polygon network validators for transaction processing. On Polygon, costs typically remain beneath one penny per operation.
Market Types
- Binary Market
- A market structure presenting precisely two mutually exclusive outcomes (YES/NO). This represents the predominant prediction market configuration.
- Categorical Market
- A market structure encompassing three or more discrete possibilities (for instance, "Which candidate will secure the Republican nomination in 2028?").
- Scalar Market
- A market where compensation adjusts proportionally with the outcome magnitude (such as, "At what level will BTC trade on 31 December?").
- Conditional Market
- A market whose settlement is contingent upon a prerequisite event materialising. 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 definitions. Polymarket's support resources address consumer-oriented terminology.
- What is the difference between a prediction market and a futures contract?
- Futures instruments maintain continuous pricing pegged to an underlying asset. Prediction markets settle at discrete $0 or $1 payoff levels contingent on event occurrence.
- What does it mean when a market is "resolved YES"?
- The specified event transpired, causing YES positions to settle at $1 per unit. NO positions receive $0. Settlement transpires automatically through blockchain execution.