In this guide
Trading in prediction markets requires fluency in terminology spanning blockchain infrastructure, quantitative methods, and financial mechanics. This glossary presents 64 crucial concepts that prediction market participants need to master — covering everything from order execution mechanics and position management through distributed ledger systems and probabilistic reasoning frameworks.
Core Trading Terms
- Ask (Offer)
- The minimum price a seller will accept to part with their shares. When you acquire shares at market rates, you transact at the ask price.
- Bid
- The maximum price a buyer will pay for shares. When you dispose of shares at market rates, you transact at the bid price.
- Bid-Ask Spread
- The gap separating the lowest ask from the highest bid. Narrower spreads indicate deeper liquidity and reduced transaction friction.
- CLOB (Central Limit Order Book)
- The matching engine powering Polymarket and PolyGram infrastructure. Pairs incoming buy and 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 tokens exist as smart contract objects 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 execution.
- FOK (Fill or Kill)
- An instruction requiring immediate complete execution or automatic cancellation. Partial completion is not permitted.
- Liquidity
- The capacity to transact large volumes without materially moving the market price. Markets exhibiting substantial volume and compressed spreads demonstrate superior liquidity characteristics.
- Market Order
- A directive to transact immediately at prevailing market rates. Execution is guaranteed but the precise price depends on available counterparties.
- Limit Order
- A directive to transact exclusively at a specified price threshold or more favourably. The order persists in the book until a matching counterparty arrives or the order is withdrawn.
- Open Interest
- The aggregate notional value of all active unsettled positions across a market. Elevated open interest signals robust participation and market depth.
- Slippage
- The variance between anticipated execution price and actual settlement price, typically arising from insufficient depth at the intended price level.
Probability & Statistics Terms
- Brier Score
- A quantitative assessment of forecast precision. Computed as the average of squared deviations between predicted likelihood and realised outcome (either 0 or 1). Diminished scores reflect superior accuracy.
- Calibration
- An assessment of alignment between stated confidence levels and empirical frequencies. Properly calibrated forecasters see their 70% confidence assessments materialise approximately 70% of the time.
- Expected Value (EV)
- The probability-weighted average return across all conceivable scenarios. Trades exhibiting positive EV generate profits when repeated across numerous iterations.
- Kelly Criterion
- An optimisation formula determining ideal position magnitude: f = (bp - q) / b, where b represents net odds, p denotes probability, and q equals 1-p.
- Superforecaster
- An individual demonstrating persistently superior calibration across extensive prediction histories, consistent with frameworks established by Philip Tetlock's empirical research.
Blockchain & Settlement Terms
- Polygon
- The secondary blockchain layer hosting Polymarket and PolyGram operations. Delivers negligible transaction expenses and finalisation within approximately 2 seconds.
- USDC (USD Coin)
- The dollar-pegged digital currency facilitating prediction market settlements. Each unit maintains equivalence to one US dollar, with Circle managing issuance against Treasury reserves.
- Smart Contract
- Autonomous programme code residing on distributed ledgers that manages prediction market capital and executes payout distributions upon market conclusion.
- Oracle
- An authoritative information provider supplying real-world event data to blockchain programmes. Polymarket employs UMA's optimistic oracle mechanism for market determination.
- Gas
- The compensation provided to Polygon network operators for transaction processing. Polygon transaction costs typically remain beneath one cent.
Market Types
- Binary Market
- A market structure permitting precisely two potential resolutions (YES/NO). This represents the predominant prediction market architecture.
- Categorical Market
- A market structure accommodating multiple discrete outcomes (for instance, "Which candidate will secure the Republican nomination in 2028?").
- Scalar Market
- A market structure where compensation correlates with the outcome magnitude (for example, "What will the Bitcoin price equal on December 31?").
- Conditional Market
- A market structure that only concludes contingent upon a prerequisite event materialising. The market becomes void if the prerequisite fails to occur.
FAQ
- Where can I learn more prediction market terminology?
- PolyGram's API documentation provides comprehensive technical definitions. Polymarket's support resources address operational and user-oriented terminology.
- What is the difference between a prediction market and a futures contract?
- Futures instruments maintain dynamic pricing reflecting an underlying asset's value trajectory. Prediction markets deliver fixed $0 or $1 payouts determined by whether specified events transpire.
- What does it mean when a market is "resolved YES"?
- The specified occurrence took place, resulting in YES share holders receiving $1 per share. NO share holders receive nothing. Blockchain protocols execute settlement instantaneously.