In this guide
Trading in prediction markets requires fluency in a specialised lexicon spanning finance, mathematics, and distributed ledger systems. This comprehensive glossary presents 64 critical terms that every prediction market participant must grasp — encompassing execution mechanics, quantitative methods, blockchain infrastructure, and forecasting methodology.
Core Trading Terms
- Ask (Offer)
- The minimum price a seller will accept to dispose of shares. When purchasing at prevailing market rates, you transact at the ask price.
- Bid
- The maximum price a purchaser will pay to acquire shares. When liquidating at prevailing market rates, you receive 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 order-routing infrastructure deployed by Polymarket and PolyGram. Executes buy and sell orders according to price hierarchy and temporal sequence.
- Conditional Token
- The blockchain-native instrument representing a YES or NO position in a prediction market. Encoded within smart contracts on Polygon.
- Fill Price
- The precise rate at which your transaction settled. Often diverges from the quoted rate if market conditions shift between submission and completion.
- FOK (Fill or Kill)
- An instruction type requiring instantaneous full execution or immediate cancellation. Partial satisfaction is 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.
- Market Order
- An instruction to transact immediately at the prevailing quoted price. Execution is prompt, though the realised price reflects current supply and demand.
- 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 The order persists in the book until matched or withdrawn.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 exposure of all active, unresolved positions. Elevated open interest signals robust trading participation and market depth.
- Slippage
- The variance between anticipated execution price and actual settlement price, arising from inadequate depth at the target level.
Probability & Statistics Terms
- Brier Score
- A quantitative assessment of forecast precision. Computed as the mean squared deviation between estimated probability and realised outcome (0 or 1). Diminished scores denote superior accuracy.
- Calibration
- The alignment between stated confidence levels and empirical occurrence rates. Properly calibrated forecasters see their 70% confidence assertions materialise approximately 70% of the time.
- Expected Value (EV)
- The weighted average return across all conceivable scenarios. Positive EV indicates a position likely to generate profit over repeated execution.
- Kelly Criterion
- A mathematical framework for determining position magnitude: f = (bp - q) / b, wherein b represents net odds, p denotes probability, and q equals 1-p.
- Superforecaster
- A market participant demonstrating sustained superior calibration across numerous forecasts, consistent with Philip Tetlock's empirical findings.
Blockchain & Settlement Terms
- Polygon
- The Layer 2 settlement network supporting Polymarket and PolyGram operations. Delivers sub-cent transaction expenses and approximately 2-second transaction finality.
- USDC (USD Coin)
- The fiat-pegged token employed for prediction market settlement. Maintains 1:1 correspondence with USD, administered by Circle and collateralised by US government obligations.
- Smart Contract
- Autonomous executable protocols deployed on distributed ledgers that custodise market capital and orchestrate automatic payout distribution upon market conclusion.
- Oracle
- An authoritative information provider furnishing real-world event data to blockchain protocols. PolyGram utilises UMA's optimistic oracle mechanism for market resolution.
- Gas
- The compensation remitted to Polygon validators for transaction processing. Customarily beneath $0.01 on the Polygon network.
Market Types
- Binary Market
- A market structure featuring precisely two mutually exclusive outcomes (YES/NO). The predominant architecture in prediction market design.
- Categorical Market
- A market structure accommodating multiple discrete outcomes (e.g., "Which candidate will secure the Republican nomination in 2028?").
- Scalar Market
- A market where settlement value fluctuates proportionally with the realised outcome magnitude (e.g., "What will the Bitcoin spot price be on 31 December?").
- Conditional Market
- A market whose resolution hinges upon the materialisation of a prerequisite condition. Becomes void if the conditioning event does not transpire.
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 a continuously-quoted price indexed to an underlying asset. Prediction markets deliver a discrete $0 or $1 settlement contingent on event occurrence.
- What does it mean when a market is "resolved YES"?
- The underlying event has materialised, rendering YES shares worth $1 apiece. NO shares yield $0. Disbursement executes automatically through smart contract logic.