In this guide
Engaging with prediction markets requires familiarity with terminology spanning finance, mathematics, and distributed ledger systems. This glossary presents 64 core terms that every prediction market participant ought to grasp — encompassing execution mechanics, statistical foundations, blockchain infrastructure, and market classification frameworks.
Core Trading Terms
- Ask (Offer)
- The minimum price at which a seller agrees to part with shares. When you acquire shares at prevailing market rates, you transact at the ask.
- Bid
- The maximum price a buyer will commit to for share acquisition. When you liquidate shares at prevailing market rates, you obtain the bid.
- Bid-Ask Spread
- The gap separating the lowest ask from the highest bid. Narrower spreads signal deeper liquidity and diminished transaction expenses.
- CLOB (Central Limit Order Book)
- The order-matching infrastructure deployed by Polymarket and PolyGram. It pairs dormant purchase and sale orders according to price level and temporal sequence.
- Conditional Token
- The blockchain-native encoding of a YES or NO share within a prediction market. These tokens reside within smart contracts deployed on Polygon.
- Fill Price
- The precise price your trade settled at upon completion. This may diverge from the initially quoted price should market conditions shift between submission and fulfilment.
- FOK (Fill or Kill)
- An instruction type requiring instantaneous complete execution or immediate cancellation. Fractional fills are not permitted.
- Liquidity
- The capacity to transact substantial volumes without materially moving the quoted price. Markets exhibiting high volume and compressed spreads demonstrate superior liquidity characteristics.
- Market Order
- A directive to transact at the most favourable rate presently obtainable. Immediate settlement occurs, though at whatever price the market currently reflects.
- Limit Order
- A directive to transact exclusively at a designated price threshold or more advantageously. The order persists within the book until matched or withdrawn.
- Open Interest
- The cumulative notional exposure of all active unsettled positions within a market. Elevated open interest correlates with heightened participation and depth.
- Slippage
- The variance between anticipated execution price and realised settlement price, stemming from inadequate depth at the intended price level.
Probability & Statistics Terms
- Brier Score
- A quantitative assessment of forecast precision. Diminished values denote superior performance. Computation involves the average squared deviation between your estimated likelihood and the actual outcome (either 0 or 1).
- Calibration
- An assessment of alignment between your probability assignments and empirical frequencies. Properly calibrated forecasters see their 70% confidence events materialise approximately 70% of the time.
- Expected Value (EV)
- The anticipated return accounting for all conceivable scenarios, each weighted by its respective probability. Positive EV indicates a wager that generates profit across extended repetition.
- Kelly Criterion
- A mathematical framework governing ideal stake allocation: f = (bp - q) / b, in which b represents net odds, p denotes probability, and q equals 1-p.
- Superforecaster
- An individual exhibiting demonstrably superior calibration performance across numerous forecasts, consistent with frameworks established in Philip Tetlock's scholarly work.
Blockchain & Settlement Terms
- Polygon
- The secondary-layer blockchain infrastructure supporting Polymarket and PolyGram operations. It furnishes transaction costs measured in fractions of a cent alongside confirmation finality within approximately 2 seconds.
- USDC (USD Coin)
- The collateralised digital currency employed for prediction market payouts. Each unit maintains equivalence to one US dollar, with issuance administered by Circle and reserves held in US government securities.
- Smart Contract
- Autonomous code residing on distributed ledgers that custodies prediction market capital and orchestrates automatic payout disbursement upon market conclusion.
- Oracle
- An authoritative information provider furnishing real-world event data to blockchain-based contracts. Polymarket relies on UMA's optimistic oracle mechanism for market determination.
- Gas
- The compensation remitted to Polygon network participants for transaction processing. On Polygon, this typically amounts to less than $0.01 per transaction.
Market Types
- Binary Market
- A market structure permitting precisely two possible resolutions (YES/NO). This represents the predominant prediction market configuration.
- Categorical Market
- A market permitting multiple distinct outcomes (for instance, "Which candidate will secure the Republican nomination in 2028?").
- Scalar Market
- A market architecture where compensation correlates with the outcome's numerical value (for example, "What shall Bitcoin's valuation be on the final day of the year?").
- Conditional Market
- A market whose determination hinges upon the satisfaction of a prerequisite condition. The market becomes void should that condition fail to materialise.
FAQ
- Where can I learn more prediction market terminology?
- PolyGram's API documentation furnishes comprehensive technical definitions. Polymarket's support resources address consumer-oriented vocabulary.
- What is the difference between a prediction market and a futures contract?
- Futures contracts maintain dynamic pricing reflecting an underlying asset's valuation. Prediction markets deliver fixed $0 or $1 compensation contingent upon whether an event transpires.
- What does it mean when a market is "resolved YES"?
- The forecasted event has materialised, causing YES shares to remit $1 each. NO shares remit nothing. The blockchain automatically executes settlement through smart contract logic.