In this guide
Trading on prediction markets requires familiarity with terminology spanning finance, mathematics, and distributed ledger systems. This glossary defines 64 critical terms that active traders encounter — covering order mechanics, statistical concepts, blockchain infrastructure, and forecasting methodology.
Core Trading Terms
- Ask (Offer)
- The minimum price at which a seller agrees to part with shares. When you purchase at market, you transact at the ask price.
- Bid
- The maximum price a buyer will pay for shares. When you liquidate at market, you receive 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 order-matching engine powering Polymarket and PolyGram. It pairs incoming buy and sell orders according to price level and temporal sequence.
- Conditional Token
- An on-chain asset representing a YES or NO position in a prediction market. These tokens live as smart contract records on Polygon.
- Fill Price
- The precise price your trade executed at. This may diverge from your quoted price if market conditions shift between submission and completion.
- FOK (Fill or Kill)
- An order instruction requiring immediate full execution or automatic cancellation. Partial completion is not permitted.
- Liquidity
- The capacity to enter or exit positions without materially moving the market. Markets with substantial volume and compressed spreads exhibit superior liquidity.
- Market Order
- An instruction to transact immediately at prevailing rates. Execution is guaranteed, but price is determined by current supply and demand.
- Limit Order
- An instruction to transact only at a designated price threshold or more favourably. The order waits in the book until a matching counterparty appears or you cancel.
- Open Interest
- The aggregate notional value of all active, unresolved positions. Elevated open interest signals robust trading participation and market depth.
- Slippage
- The variance between anticipated execution price and actual fill price, arising from inadequate liquidity at your target level.
Probability & Statistics Terms
- Brier Score
- A numerical metric quantifying forecast precision. Smaller values denote better performance. It computes the average squared deviation between your assigned probability and the realised outcome (either 0 or 1).
- Calibration
- The degree to which your probability assignments correspond to empirical frequencies. Proper calibration means events you assign 70% probability materialise approximately 70% of the time.
- Expected Value (EV)
- The probability-weighted mean outcome across all scenarios. Positive EV signals a trade likely to generate returns when repeated over time.
- Kelly Criterion
- A mathematical framework for determining ideal stake allocation: f = (bp - q) / b, where b represents net odds, p denotes probability, and q equals 1-p.
- Superforecaster
- A forecaster or trader exhibiting sustained superior calibration across numerous predictions, as documented in Philip Tetlock's scholarly work.
Blockchain & Settlement Terms
- Polygon
- The Layer 2 scaling solution hosting Polymarket and PolyGram. It delivers transaction costs measured in fractions of a cent and block confirmation within approximately 2 seconds.
- USDC (USD Coin)
- The dollar-pegged stablecoin utilised for settling prediction market positions. Each unit maintains parity with one US dollar, issued by Circle and collateralised by Treasury securities.
- Smart Contract
- Autonomous code deployed on the blockchain that manages market reserves and executes payouts deterministically upon market resolution.
- Oracle
- An authoritative information provider supplying real-world event data to on-chain contracts. Polymarket leverages UMA's optimistic oracle mechanism for outcome determination.
- Gas
- The cost levied by Polygon validators for transaction processing. On Polygon, this typically remains under one cent per transaction.
Market Types
- Binary Market
- A market structure permitting precisely two competing outcomes (YES or NO). This represents the standard prediction market architecture.
- Categorical Market
- A market permitting three or more distinct outcomes (for instance, "Which candidate will secure the 2028 Republican presidential nomination?").
- Scalar Market
- A market where compensation adjusts proportionally to the realised outcome value (such as "What will Bitcoin's price equal on the final day of the year?").
- Conditional Market
- A market whose resolution hinges on a prerequisite event materialising. The market becomes void if the conditioning event fails to occur.
FAQ
- Where can I learn more prediction market terminology?
- PolyGram's API documentation provides thorough 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 contracts maintain dynamic pricing reflecting an underlying asset's value. Prediction markets settle to either $0 or $1 based on whether a specified event materialises.
- What does it mean when a market is "resolved YES"?
- The underlying event has occurred, causing YES share holders to receive $1 per share. NO share holders receive nothing. The blockchain executes this settlement instantaneously.