Prediction Market Glossary: 50+ Terms Every Trader Should Know

Prediction markets borrow language from finance, trading, and betting. And they add some of their own. Whether you're a complete beginner or a trader migrating from stocks or sports betting, this glossary covers every term you'll encounter.

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A

Arbitrage: Buying and selling the same event across different platforms to lock in a guaranteed profit from price differences. If "Yes" costs $0.40 on Kalshi and "No" costs $0.55 on Polymarket (total $0.95), you can buy both for a guaranteed $0.05 profit regardless of the outcome.

Ask (Offer): It's the lowest price at which a seller is willing to sell a contract. When you buy at market price, you're buying at the ask.

B

Bid: It's the highest price a buyer is willing to pay for a contract. When you sell at market price, you're selling at the bid.

Bid-Ask Spread: It's the difference between the highest bid and lowest ask. A tight spread (e.g., $0.01-0.02) indicates a liquid market. A wide spread indicates thin liquidity.

Binary Contract: An event contract with exactly two outcomes: Yes or No. The standard format in most prediction markets.

Bookmaker Model: A model where the platform sets odds and takes the other side of every bet. Sports betting uses this. Prediction markets generally don't.

C

CFTC (Commodity Futures Trading Commission): It's the US federal agency that regulates prediction markets. It classifies event contracts as swaps and oversees registered platforms.

Contract: See "Event Contract."

Counterpart: The person on the other side of your trade. In an exchange model (e.g., prediction markets), your counterparty is another trader. On a bookmaker model (sportsbooks), your counterparty is the house.

D

DCM (Designated Contract Market) is a CFTC-registered exchange authorized to list and trade event contracts. Kalshi is a DCM.

Decentralized Prediction Market: A prediction market running on blockchain technology where trades are executed by smart contracts rather than a centralized platform. Polymarket uses this architecture.

Depth: See "Market Depth".

E

Edge: An informational or analytical advantage that allows you to identify mispriced contracts. If you consistently buy contracts that are underpriced relative to the true probability, you have an edge.

Event Contract: A financial derivative that pays a fixed amount ($1.00) based on whether a specific real-world event occurs. The core instrument in prediction markets.

Exchange Model: A model where the platform matches buyers and sellers rather than taking the other side of trades. Prediction markets use this model.

Expiration: The date or event that triggers the final resolution of a contract.

F

Fill: When your order is matched with a counterparty and the trade executes. A "partial fill" means only some of your contracts were matched.

Fixed Payout: The predetermined amount paid to winning contracts. In most prediction markets, this is $1.00 per contract.

H

Hedge: Using event contracts to offset real-world risk. A company might buy "Yes" on a regulatory change that would hurt their business, so the payout compensates for the business loss.

I

Implied Probability: It's the probability of an event occurring as suggested by the contract price. A contract trading at $0.65 implies a 65% probability. Calculated as: Contract Price ÷ Payout Amount.

K

KYC (Know Your Customer): Identity verification required by regulated platforms. You'll need to provide a government ID and personal information to trade on platforms like Kalshi and Polymarket US.

L

Limit Order: An order to buy or sell contracts at a specific price. It sits in the order book until a matching counterparty appears or you cancel it. Gives you price control but doesn't guarantee execution.

Liquidity: How easily contracts can be bought and sold without significantly affecting the price. High liquidity = tight spreads, easy fills, stable prices. Low liquidity = wide spreads, difficult fills, volatile prices.

Long: holding a "Yes" position. You profit if the event happens.

M

Maker: A trader who adds liquidity to the order book by placing limit orders. Some platforms offer reduced fees or rebates for makers.

Market Depth: It's the volume of buy and sell orders (at various unknown price levels) in the order book. Deep markets can absorb large orders without price impact.

Market Order: An order that executes immediately at the best available price. Guarantees execution but not price.

Multi-Outcome Market: A market with more than two possible results. Example: "Which team will win the Super Bowl?" with contracts for each team.

N

No Contract: A contract that pays $1.00 if the event does NOT happen. If you think something is unlikely, you buy "No."

O

Open Interest: The total number of outstanding (unsettled) contracts in a market. High open interest indicates active participation and generally better liquidity.

Oracle: In decentralized prediction markets, the system that verifies real-world outcomes and triggers contract settlement. Can be human-based, automated, or a combination.

Order Book: The list of all outstanding buy and sell orders for a specific contract, organized by price.

Overround: When the implied probabilities of all outcomes in a market add up to more than 100%. Common in sportsbooks (the vig), less common in prediction market exchanges.

P

Payout: The amount received when a contract resolves in your favor. The standard is $1.00 per contract.

Position: Your current holdings in a particular market. "I have a long position of 50 Yes contracts at $0.40."

Price Discovery: The process by which the market collectively determines the fair price (implied probability) of an event through trading activity.

Probability: See "Implied Probability".

R

Ranged Market: A market divided into multiple brackets or ranges. Example: "What will the unemployment rate be?" with separate contracts for different ranges.

Resolution: The process of determining the outcome of an event and settling all contracts. Winning contracts are paid out; losing contracts go to zero.

Resolution Criteria: The specific, predefined rules that determine how a market resolves. Includes the data source, timing, and handling of edge cases. Always read this before trading.

Resolution Source: The official data source used to determine the outcome. Example: "CPI data as reported by the Bureau of Labor Statistics."

S

SEF (Swap Execution Facility): A CFTC-registered venue for trading swaps, including event contracts. Another category of regulated platform.

Settlement: The final clearing of contracts after resolution. Winning positions are credited; losing positions are debited.

Short: Holding a "No" position. You profit if the event doesn't happen.

Slippage: The difference btwn your expected execution price and the actual price. Occurs with market orders in low-liquidity markets.

Smart Contract: Self-executing code on a crypto blockchain that automatically settles prediction market contracts on decentralized platforms.

Spread: See "Bid-Ask Spread".

Swap: The legal classification of event contracts under CFTC regulation. Event contracts are structured as swaps — financial derivatives based on the occurrence of an event.

T

Taker: A trader who removes liquidity from the order book by filling existing orders. Takers typically pay higher fees than makers.

Thin Market: A market with low liquidity and few active orders. Trading in thin markets often means wider spreads and higher slippage.

Volume: The total number of contracts traded in a given period. Higher volume generally means better liquidity and more reliable pricing.

V

Vig (Vigorish): The built-in margin in sportsbook odds. Prediction market exchanges generally don't have vig, but platform fees serve a similar function.

W

Wisdom of Crowds: The theory that the collective judgment of a large group is often more accurate than individual experts. The theoretical basis for why prediction market prices are good forecasts.

Y

Yes Contract: A contract that pays $1.00 if the event DOES happen. If you think something is likely, you buy "Yes."

This glossary covers the terms you'll encounter across all major prediction market platforms. When in doubt, come back here. And always read the resolution criteria before placing a trade.