In this guide
Engaging in prediction market trading requires familiarity with terminology spanning finance, mathematics, and distributed ledger systems. This glossary presents 64 critical terms that every prediction market participant should grasp — encompassing execution mechanisms, position management strategies, cryptographic infrastructure, and probabilistic forecasting methodologies.
Core Trading Terms
- Ask (Offer)
- The minimum amount a counterparty demands to transfer shares to you. When executing a purchase at prevailing market rates, you transact at this level.
- Bid
- The maximum amount a counterparty will remit to acquire shares from you. When liquidating a position at prevailing market rates, you receive this quotation.
- Bid-Ask Spread
- The gap separating the highest purchase offer from the lowest sale demand. Narrower spreads indicate deeper market depth and reduced transaction friction.
- CLOB (Central Limit Order Book)
- The matching engine deployed by Polymarket and PolyGram. Pairs outstanding purchase and sale instructions according to price levels and temporal sequence.
- Conditional Token
- The blockchain-native instrument representing a YES or NO entitlement within a prediction market. Maintained through cryptographic protocols on Polygon.
- Fill Price
- The precise rate at which your instruction was fulfilled. This may diverge from the initially quoted rate should market conditions shift during the interval between submission and completion.
- FOK (Fill or Kill)
- An instruction category requiring complete and immediate execution or automatic cancellation. Fractional completion is not permitted.
- Liquidity
- The capacity to transact substantial volumes without materially moving the price. Markets characterised by elevated turnover and compressed spreads demonstrate superior liquidity conditions.
- Market Order
- An instruction to transact at the prevailing best available quotation. Executes without delay, though the precise rate depends on instantaneous market supply and demand.
- Limit Order
- An instruction to transact solely at a designated rate or more favourably. The instruction persists in the matching system until a counterparty accepts or you withdraw it.
- Open Interest
- The aggregate monetary value of all unresolved outstanding commitments in a given market. Elevated open interest correlates with heightened participation and depth.
- Slippage
- The variance between your anticipated execution rate and the rate ultimately realised, stemming from constrained availability at your target price level.
Probability & Statistics Terms
- Brier Score
- A quantitative metric assessing forecast precision. Diminished values signify superior performance. Computation involves the mean squared deviation between your stated likelihood and the realised outcome (either 0 or 1).
- Calibration
- An assessment of alignment between your stated confidence intervals and empirical frequencies. Properly calibrated assessments demonstrate that occasions when you express 70% certainty materialise approximately 70% of the time.
- Expected Value (EV)
- The probabilistically weighted mean outcome across all conceivable scenarios. Positive EV indicates a wager generating returns across repeated iterations.
- Kelly Criterion
- A mathematical framework for determining ideal stake magnitudes: f = (bp - q) / b, where b denotes net payoff odds, p represents your assessed likelihood, and q equals 1-p.
- Superforecaster
- An individual demonstrating persistently superior calibration performance across numerous forecasts, as documented through Philip Tetlock's empirical investigations.
Blockchain & Settlement Terms
- Polygon
- The secondary-layer distributed ledger infrastructure supporting Polymarket and PolyGram operations. Delivers negligible transaction expenses and rapid transaction confirmation within approximately two seconds.
- USDC (USD Coin)
- The reserve-backed digital currency facilitating prediction market payouts. Maintains a 1:1 correspondence with the US dollar, administered by Circle and collateralised through US government obligations.
- Smart Contract
- Algorithmic protocols executing autonomously on distributed networks, stewarding prediction market capital and automatically disbursing winnings upon market conclusion.
- Oracle
- An authoritative information conduit transmitting empirical event determinations to blockchain-based protocols. PolyGram leverages UMA's optimistic attestation mechanism for market settlement. This regulatory framework ensures proper data validation.
- Gas
- The computational fee remitted to Polygon infrastructure operators for validating your transaction. On Polygon, such fees typically remain beneath one cent per operation.
Market Types
- Binary Market
- A market structure permitting precisely two terminal states (YES/NO). This configuration represents the predominant architecture in prediction markets.
- Categorical Market
- A market permitting multiple distinct resolutions (for instance, "Which candidate will secure the 2028 Republican presidential nomination?").
- Scalar Market
- A market in which compensation adjusts proportionally with the outcome magnitude (for example, "At what price will BTC trade on the final day of the year?").
- Conditional Market
- A market whose resolution contingent upon a prerequisite occurrence. The market terminates without payout if the prerequisite fails to materialise.
FAQ
- Where can I learn more prediction market terminology?
- PolyGram's API documentation furnishes thorough explanations of technical vocabulary. Polymarket's support resources address consumer-oriented definitions.
- What is the difference between a prediction market and a futures contract?
- Futures instruments maintain continuously fluctuating valuations anchored to underlying commodities or indices. Prediction markets instead culminate in binary payoffs of either $0 or $1 contingent on whether specified occurrences transpire.
- What does it mean when a market is "resolved YES"?
- The underlying occurrence came to pass, causing YES instruments to remit $1 per unit. NO instruments yield $0. Disbursement happens instantaneously through automated blockchain protocols.