In this guide
Engaging in prediction market trading requires familiarity with terminology spanning finance, statistical analysis, and distributed ledger systems. This comprehensive glossary presents 64 critical terms that every prediction market participant must grasp — encompassing execution mechanisms, portfolio safeguards, decentralised infrastructure, and probability assessment frameworks.
Core Trading Terms
- Ask (Offer)
- The minimum price threshold at which a seller agrees to part with shares. When purchasing at prevailing market rates, you settle at the ask price.
- Bid
- The maximum price a prospective buyer commits to pay for shares. When liquidating at market rates, you realise the bid price.
- Bid-Ask Spread
- The gap separating the best offer from the best bid. Narrower spreads correlate with enhanced market depth and diminished transaction expenses.
- CLOB (Central Limit Order Book)
- The order-matching infrastructure deployed by Polymarket and PolyGram. Reconciles resting purchase and sale orders according to price precedence and temporal sequence.
- Conditional Token
- The blockchain-resident asset embodying a YES or NO entitlement within a prediction market. Maintained within distributed ledger protocols on Polygon.
- Fill Price
- The precise rate at which your transaction was completed. May diverge from the quoted rate should market conditions shift between submission and settlement.
- FOK (Fill or Kill)
- An instruction type requiring instantaneous complete execution or automatic cancellation. Fractional completion is not permitted.
- Liquidity
- The capacity to transact shares without materially shifting market valuations. Markets exhibiting substantial volume and compressed spreads demonstrate superior liquidity characteristics.
- Market Order
- An instruction to transact at the prevailing optimal rate accessible at that moment. Completes without delay, though at whatever price the market currently reflects.
- Limit Order
- An instruction to transact exclusively at a designated rate or more favourably. Waits within the order book until a matching counterparty emerges or the instruction expires.
- Open Interest
- The aggregate monetary value of active unresolved holdings across a market. Elevated open interest signals heightened participation and depth.
- Slippage
- The variance between anticipated execution rate and actual settlement rate, stemming from constrained availability at the desired price tier.
Probability & Statistics Terms
- Brier Score
- A metric quantifying forecasting precision. Smaller values denote superior performance. Derived by computing the mean squared deviation between your estimated likelihood and the realised outcome (0 or 1).
- Calibration
- An assessment of alignment between your estimated probabilities and empirical frequencies. Properly calibrated forecasters see their 70% confidence predictions materialise roughly 70% of instances.
- Expected Value (EV)
- The probabilistic average outcome when considering all scenarios weighted by their respective likelihoods. Positive EV indicates a wager with sustainable profitability across repeated trials.
- Kelly Criterion
- A mathematical framework governing ideal stake allocation: f = (bp - q) / b, with b representing net odds, p denoting probability, and q equalling 1-p.
- Superforecaster
- A participant demonstrating persistently superior calibration across numerous forecasts, consistent with Philip Tetlock's scholarly findings.
Blockchain & Settlement Terms
- Polygon
- The secondary-layer distributed ledger infrastructure supporting Polymarket and PolyGram operations. Delivers transaction costs beneath one cent and settlement confirmation within approximately two seconds.
- USDC (USD Coin)
- The collateralised digital currency facilitating prediction market settlements. Maintains 1:1 equivalence with the US dollar, issued by Circle and underpinned by US government debt instruments.
- Smart Contract
- Autonomous executable protocols residing on distributed ledgers that safeguard prediction market capital and facilitate instantaneous compensation distribution upon market conclusion.
- Oracle
- A verified information provider furnishing real-world event confirmation to blockchain protocols. PolyGram leverages UMA's presumption-based oracle mechanism for market settlement.
- Gas
- The expense remitted to Polygon network validators for transaction processing. Customarily under one cent per transaction on Polygon infrastructure.
Market Types
- Binary Market
- A market configuration permitting precisely two potential resolutions (YES/NO). Represents the predominant prediction market structure.
- Categorical Market
- A market permitting three or more distinct possible resolutions (for instance, "Which candidate will secure the 2028 Republican nomination?").
- Scalar Market
- A market wherein compensation adjusts proportionally to the outcome magnitude (for example, "At what level will BTC trade on December 31?").
- Conditional Market
- A market whose settlement hinges upon the realisation of a prerequisite occurrence. Becomes null if the prerequisite fails to materialise.
FAQ
- Where can I learn more prediction market terminology?
- PolyGram's API documentation provides exhaustive 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 fluctuating valuations corresponding to underlying commodities. Prediction markets distribute fixed $0 or $1 compensation contingent upon event occurrence.
- What does it mean when a market is "resolved YES"?
- The specified circumstance transpired, resulting in YES holdings receiving $1 per share. NO holdings yield $0. Compensation transfers occur mechanically through blockchain protocols.