In this guide
Trading in prediction markets requires fluency in terminology spanning finance, mathematics, and distributed ledger systems. This glossary presents 64 critical terms that every prediction market participant must grasp — covering execution mechanics, statistical foundations, blockchain infrastructure, and market classification schemes.
Core Trading Terms
- Ask (Offer)
- The minimum price at which a seller will part with shares. When you purchase at market rates, you transact at the ask price.
- Bid
- The maximum price at which a buyer will acquire shares. When you sell at market rates, you transact at the bid price.
- Bid-Ask Spread
- The gap separating the best bid from the best ask. Narrower spreads indicate deeper liquidity and reduced transaction friction.
- CLOB (Central Limit Order Book)
- The matching engine powering Polymarket and PolyGram. Pairs incoming buy orders with resting sell orders according to price levels and temporal sequence.
- Conditional Token
- The blockchain-native instrument representing 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 completes. This may diverge from your quoted rate if market conditions shift between submission and settlement.
- FOK (Fill or Kill)
- An instruction to execute your entire order instantaneously or discard it. Fractional execution is prohibited.
- Liquidity
- The capacity to transact substantial volume without materially moving the price. Markets exhibiting high turnover and narrow spreads demonstrate superior liquidity.
- Market Order
- An instruction to transact immediately at prevailing market rates. Execution is prompt, though the actual price reflects current supply and demand.
- Limit Order
- An instruction to transact exclusively at your designated price threshold or more favourably. The order persists in the book until it matches or you withdraw it.
- Open Interest
- The aggregate notional value of all active unresolved positions. Greater open interest signals heightened participation and market depth.
- Slippage
- The variance between your anticipated execution price and the actual fill price, typically arising from inadequate depth at your target level.
Probability & Statistics Terms
- Brier Score
- A metric quantifying forecast precision. Smaller values denote superior accuracy. Derived by computing the mean squared deviation between your stated probability and the realised outcome (either 0 or 1).
- Calibration
- The alignment between your confidence levels and empirical frequencies. Excellent calibration means assertions made at 70% confidence materialise roughly 70% of the time.
- Expected Value (EV)
- The weighted average return across all conceivable scenarios. A positive EV indicates a wager that generates profit when repeated across many iterations.
- Kelly Criterion
- A formula governing ideal stake allocation: f = (bp - q) / b, where b denotes net odds, p represents your probability estimate, and q equals 1-p.
- Superforecaster
- An individual exhibiting superior calibration metrics 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. Provides minimal transaction expenses (fractions of a cent) and rapid settlement (~2 seconds).
- USDC (USD Coin)
- The collateralised digital currency employed for prediction market settlements. Maintains 1:1 parity with the US dollar, administered by Circle with backing from US government debt instruments.
- Smart Contract
- Autonomous programme logic residing on-chain that secures market funds and orchestrates automated payout distribution upon market conclusion.
- Oracle
- An authoritative information provider furnishing factual outcomes to blockchain programmes. PolyGram relies on UMA's optimistic oracle framework for market determination.
- Gas
- The compensation remitted to Polygon network operators for validating transactions. On Polygon, this typically amounts to under $0.01 per operation.
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 structure accommodating multiple distinct outcomes (for instance, "Which candidate will secure the Republican nomination in 2028?").
- Scalar Market
- A market structure where compensation fluctuates proportionally with the realised outcome value (for example, "What will Bitcoin's price reach by December 31?").
- Conditional Market
- A market structure that concludes only upon occurrence of a prerequisite event. The market becomes void if the prerequisite fails 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 language and concepts.
- What is the difference between a prediction market and a futures contract?
- Futures instruments maintain dynamic pricing pegged to an underlying commodity. Prediction markets deliver fixed payouts ($0 or $1) contingent on whether specified events transpire.
- What does it mean when a market is "resolved YES"?
- The underlying event has occurred, causing YES shares to settle at $1 per unit. NO shares settle at $0. The blockchain executes settlement instantaneously through pre-programmed logic.