Prediction Market Glossary: 66 Terms Explained

A comprehensive glossary of prediction market, trading, and blockchain terms. Whether you are a beginner learning the basics or an experienced trader looking up a specific concept, this reference covers every term you will encounter on PolyGram and Polymarket.

A
Arbitrage: The practice of simultaneously buying and selling the same outcome on different platforms (or related outcomes on the same platform) to lock in a risk-free profit. In prediction markets, arbitrage opportunities arise when prices diverge between platforms or when related contracts are mispriced relative to each other.
Ask: The lowest price at which a seller is willing to sell shares in a prediction market. The ask price represents the cheapest available offer. The difference between the best bid and best ask is called the spread.
B
Bid: The highest price a buyer is willing to pay for shares in a prediction market. Bids sit in the order book waiting to be matched against incoming sell orders. A competitive bid-ask spread indicates a healthy, liquid market.
Binary Option: A financial contract that pays a fixed amount ($1) if a specified condition is met at expiry, and $0 otherwise. Every prediction market contract is a binary option — YES shares pay $1 if the event resolves YES, and $0 if it resolves NO.
C
CLOB (Central Limit Order Book): An order matching system that sorts all buy and sell orders by price and time priority. Polymarket uses a CLOB where limit orders rest in the book until matched by incoming market or limit orders. This is the same mechanism used by traditional stock exchanges.
Conditional Order: An order that only activates when a specified trigger condition is met. Types include stop-loss (sell if price drops below X), take-profit (sell if price rises above X), and trailing stop (dynamic stop that follows the price). Used for automated risk management.
Contrarian Trading: A strategy that involves taking positions opposite to the prevailing market sentiment. In prediction markets, contrarian traders buy when the crowd panics after a news event, betting that the market has overreacted and will correct back toward the pre-event price.
E
Expected Value (EV): The average outcome of a trade if it were repeated many times. Calculated as (probability of winning x profit) minus (probability of losing x loss). Positive EV means the trade is profitable in the long run. Every trading decision should be evaluated on expected value, not gut feeling.
F
Fill-or-Kill (FOK): A time-in-force instruction that requires an order to be executed in its entirety immediately, or cancelled completely. No partial fills are allowed. Used when a trader needs a specific position size and does not want a partial execution.
G
Good-Till-Cancelled (GTC): A time-in-force instruction that keeps a limit order active in the order book until it is either filled or manually cancelled by the trader. GTC orders have no expiration date, making them useful for patient traders waiting for a specific price.
I
Implied Probability: The probability of an outcome as reflected by the current market price. In prediction markets, a YES share priced at $0.65 implies a 65% probability that the event will happen. Implied probabilities should sum to approximately 100% across all outcomes of a market.
Immediate-or-Cancel (IOC): A time-in-force instruction that fills as much of an order as possible immediately, then cancels any remaining unfilled portion. Unlike FOK, IOC allows partial fills. Useful for large orders where partial execution is acceptable.
K
Kelly Criterion: A mathematical formula that calculates the optimal fraction of your bankroll to bet given your edge and the odds. The formula is: Kelly % = (bp - q) / b, where b = net odds, p = win probability, q = loss probability. Most traders use fractional Kelly (half or quarter) to reduce variance.
L
Limit Order: An order to buy or sell shares at a specified price or better. Unlike a market order, a limit order is not guaranteed to execute — it waits in the order book until the market reaches your price. Limit orders give traders price control but sacrifice execution speed.
Liquidity: The ease with which shares can be bought or sold without significantly moving the price. High liquidity means large orders can be executed with minimal price impact. Liquidity is measured by order book depth and bid-ask spread.
M
Maker: A trader who places a limit order that adds liquidity to the order book. Makers provide liquidity by posting bids and asks that other traders can hit. Some platforms offer lower fees or rebates to makers as an incentive to provide liquidity.
Market Order: An order to buy or sell shares immediately at the best available price. Market orders guarantee execution but not price — in thin markets, a large market order can experience significant slippage (worse-than-expected price).
Market Resolution: The process by which a prediction market determines the outcome and distributes payouts. Resolution sources vary — election markets use AP race calls, crypto markets use exchange spot prices, and disputed outcomes may go to oracle-based arbitration.
O
OCO (One-Cancels-Other): A pair of linked orders where the execution of one automatically cancels the other. Commonly used to set both a take-profit and a stop-loss on the same position — whichever triggers first cancels the remaining order.
Oracle: An external data source that provides the outcome information needed to resolve a prediction market. Polymarket uses the UMA (Universal Market Access) optimistic oracle, where a proposer submits the outcome and token holders can dispute it within a 2-hour window.
Order Book: A real-time, ranked list of all pending buy orders (bids) and sell orders (asks) for a particular market. The order book shows available liquidity at each price level and determines which orders are matched when new orders arrive.
Overround: The amount by which the sum of implied probabilities across all outcomes exceeds 100%. Traditional bookmakers build in overround (typically 105-115%) as their profit margin. In prediction markets, overround is typically minimal (100-102%), reflecting a near-zero house edge.
P
Polygon: A Layer 2 blockchain network built on Ethereum that processes transactions faster and cheaper than Ethereum mainnet. Polymarket runs on Polygon, where gas fees are typically under $0.01 per transaction. The native currency is MATIC (now POL).
Position: A trader's current holdings in a market. A long position (holding YES shares) profits if the event resolves YES. A short position (holding NO shares) profits if the event resolves NO. Positions can be closed at any time before resolution by selling shares.
Prediction Market: An exchange-traded market where participants buy and sell contracts tied to real-world outcomes. Prices reflect the crowd's aggregate probability estimate for each outcome. Research consistently shows prediction markets outperform polls and expert panels in forecasting accuracy.
R
Resolution Source: The authoritative data source used to determine the outcome of a prediction market. Examples include Associated Press (elections), Coinbase spot price (crypto), and official government statistics (economic data). The resolution source is defined before the market opens.
S
Slippage: The difference between the expected price of a trade and the actual execution price. Slippage occurs when a market order is larger than the available liquidity at the best price, causing the order to fill at progressively worse price levels in the order book.
Smart Contract: Self-executing code deployed on a blockchain that automatically enforces the terms of an agreement. In prediction markets, smart contracts handle deposits, trade settlement, and payouts without human intermediation. The code is publicly auditable, ensuring transparency.
Spread: The difference between the best bid price and the best ask price in a market. A tight spread (1-2 cents) indicates high liquidity and low trading costs. A wide spread (5+ cents) means higher implicit costs and lower liquidity.
Stablecoin: A cryptocurrency designed to maintain a stable value relative to a fiat currency. USDC (USD Coin) is pegged 1:1 to the US dollar and is the primary trading currency on Polymarket. Stablecoins eliminate crypto price volatility from your trading account.
Stop-Loss: A conditional order that automatically sells a position if the price drops to a specified level. Stop-losses limit downside risk by exiting losing positions before the loss grows further. Essential for risk management in volatile markets.
T
Taker: A trader who places an order that immediately matches against existing orders in the book, removing liquidity. Takers typically pay slightly higher fees than makers. Market orders are always taker orders; limit orders that cross the spread are also taker orders.
Take-Profit: A conditional order that automatically sells a position when the price reaches a specified profit target. Take-profit orders lock in gains without requiring the trader to monitor the market continuously.
Time-in-Force (TIF): An instruction attached to an order that specifies how long the order remains active. Common TIF types are GTC (Good-Till-Cancelled), GTD (Good-Till-Date), IOC (Immediate-or-Cancel), and FOK (Fill-or-Kill). Each serves different trading strategies.
Trailing Stop: A dynamic stop-loss that follows the market price upward by a fixed amount or percentage. If the price reverses by the trail amount, the stop triggers and sells the position. Trailing stops protect profits while allowing winning positions to continue running.
U
UMA Oracle: The Universal Market Access optimistic oracle system used by Polymarket for market resolution. A proposer submits the outcome with a bond; if no one disputes within the challenge window, the result is accepted. Disputes trigger a token-holder vote for decentralized arbitration.
USDC (USD Coin): A fully-backed stablecoin issued by Circle, pegged 1:1 to the US dollar. USDC on the Polygon network is the primary trading currency on Polymarket. Each USDC token is backed by $1 in reserves, audited monthly by Deloitte.
V
Volatility: The degree of price variation in a market over time. High volatility means prices are swinging widely, creating both risk and opportunity. Election markets tend to be low-volatility until major events (debates, endorsements) trigger sharp moves.
Vig (Vigorish): The commission or margin built into odds by a bookmaker to guarantee profit regardless of the outcome. Traditional sports books charge 5-15% vig. Prediction markets like Polymarket have no vig — the only cost is the natural bid-ask spread set by traders.
W
Whale: A trader with a very large position or account balance who can significantly influence market prices. Whale activity is visible in the order book as large bids or asks. Tracking whale movements can provide useful signals about informed money flow.
A
AMM (Automated Market Maker): A smart contract that sets prices algorithmically using a mathematical formula (e.g., x*y=k) rather than matching buyers and sellers via an order book. Early prediction markets like Augur used AMMs. Polymarket switched to a CLOB model for tighter spreads and better capital efficiency.
B
Bankroll Management: The practice of limiting position sizes relative to your total account balance to survive losing streaks. A common rule is to risk no more than 1-5% of your bankroll on any single market. Poor bankroll management is the primary reason skilled forecasters lose money over time.
Basis Risk: The risk that two correlated positions do not move in lockstep, leaving a hedged position exposed to unexpected losses. In prediction markets, basis risk arises when hedging one binary outcome with a related but distinct market.
C
Calibration: A measure of how accurately a forecaster's stated probabilities match real-world frequencies. A well-calibrated forecaster who says 70% is right about 70% of the time. Over-confidence (saying 90% when the true rate is 70%) is the most common calibration error.
Copy Trading: Automatically replicating another trader's positions in real time. PolyGram's copy trading feature lets users follow top-ranked traders and mirror their YES/NO positions up to a configurable dollar cap per position. Revenue flows to the leader when followers profit.
D
Dead Market: A prediction market with very low liquidity, wide spreads, and few active traders. Dead markets are prone to stale prices and are difficult to exit at fair value. Always check order book depth and recent trade history before entering a position.
E
Edge: The difference between your estimated true probability and the market-implied probability. If you believe an event has a 60% chance of occurring but the market is pricing it at 45%, you have 15% edge. Trading consistently on positive-edge opportunities is the foundation of profitable forecasting.
Epistemic Uncertainty: Uncertainty that arises from lack of knowledge, as distinct from inherent randomness (aleatoric uncertainty). A market about a coin flip is aleatoric — no amount of information changes the 50/50 odds. A market about a political decision is epistemic — better information improves your edge.
F
Fat-Tail Risk: The risk of extreme, low-probability outcomes that have outsized impact. Prediction markets on binary events are inherently fat-tailed — a 2% probability event still happens 1-in-50 times. Never bet an amount you cannot afford to lose on any single outcome.
Front-Running: Trading on knowledge of another large order before it executes, profiting from the predictable price impact. In decentralised prediction markets, on-chain transactions can be front-run by bots monitoring the mempool. On-chain limit orders carry some front-running risk.
H
Hedging: Reducing exposure to an existing position by taking an offsetting position. If you hold YES shares in a market and new information increases uncertainty, buying NO shares on the same market converts your directional bet into a spread trade, limiting potential loss.
I
Information Asymmetry: A situation where one party in a trade has materially better information than the other. In prediction markets, insiders with non-public information can earn consistent edge. Market prices rapidly incorporate public information; the edge comes from either superior private information or superior analysis of public information.
L
Long: Holding YES shares — profiting if the event resolves as true. Going long in a prediction market means you believe the current implied probability is lower than the true probability. Your maximum profit is $1 per share minus your purchase price; your maximum loss is your purchase price.
M
Mean Reversion: The tendency of prices to return to a historical average after extreme moves. In prediction markets, sharp price movements driven by breaking news often partially reverse as the market digests the information and initial emotional reactions are corrected by rational analysis.
Momentum: The tendency for trends in market prices to persist over short time horizons. In prediction markets, momentum traders buy markets that have recently risen and sell markets that have fallen, betting that the trend reflects genuine information flow rather than noise.
O
Open Interest: The total number of YES or NO shares currently outstanding in a market. Higher open interest indicates more active participation and generally better liquidity. Open interest increases when new shares are created and decreases when positions are closed or the market resolves.
P
P&L (Profit and Loss): The total gain or loss from trading activity over a specified period. Unrealised P&L reflects the current value of open positions relative to entry price. Realised P&L counts only completed trades. PolyGram's leaderboard ranks traders by realised P&L net of fees.
Probability Weighting: A cognitive bias where people systematically overweight small probabilities and underweight large probabilities. Bettors tend to overpay for long-shot outcomes (a 5% chance is priced as if it were 10%) and underpay for near-certain outcomes. Exploiting probability weighting is a known source of edge in prediction markets.
R
Resolution Date: The date or time at which a prediction market closes and the outcome is determined. After the resolution date, no new trades are accepted and winning shares begin the payout process. Markets that resolve early (e.g., if an election is called before the scheduled date) close when the resolution event occurs.
Risk Premium: The extra return demanded by traders for holding an uncertain or illiquid position. In prediction markets, thin markets and near-expiry contracts often trade at slight discounts to their true probability, offering a risk premium to patient traders willing to hold to resolution.
S
Share: The basic unit of a prediction market position. Each market has YES shares and NO shares priced between $0 and $1. Shares resolve to exactly $1 (correct outcome) or $0 (wrong outcome). Unlike stocks, prediction market shares do not pay dividends and have no claim on assets.
Short: Holding NO shares — profiting if the event resolves as false. Going short means you believe the market is overestimating the probability of the event. Your maximum profit is the NO share price; your maximum loss is $1 minus the NO share price.
Superforecaster: A term coined by researcher Philip Tetlock for individuals who consistently outperform both expert panels and simple statistical models in long-range forecasting. Superforecasters tend to be actively open-minded, update frequently on new information, and calibrate their confidence carefully.
T
TWAP (Time-Weighted Average Price): The average price of a security calculated by dividing the sum of price-over-time by the total time elapsed. Used to measure execution quality and benchmark large order performance. Also used as an oracle price source in some DeFi protocols to prevent short-term price manipulation.
U
Upside / Downside: The potential gain (upside) or loss (downside) of a position. In prediction markets, maximum upside on a YES position is $1 minus entry price; maximum downside is the entry price. Evaluating the risk/reward ratio before entry is fundamental to good trade selection.
V
Volume: The total dollar value of shares traded in a market over a given period. Volume is the strongest indicator of a market's health and efficiency. High-volume markets have tighter spreads, better price discovery, and lower market impact for large orders.

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