Prediction Market Glossary

40+ key terms every prediction market trader needs to know. Updated for 2026.

A

AMM (Automated Market Maker)

An algorithm that provides liquidity by automatically setting prices based on a mathematical formula. Unlike traditional order books where humans provide liquidity, AMMs use smart contracts to enable trading at any time. Some older prediction markets used AMMs, but most modern platforms like Polymarket have switched to CLOB systems for better price discovery.

Arbitrage

The practice of exploiting price differences between markets to earn risk-free profit. In prediction markets, arbitrage opportunities arise when the same event is priced differently on two platforms (e.g., 65% on Polymarket and 60% on Kalshi), or when Yes + No prices don't sum to $1.00 on the same platform.

B

Bid-Ask Spread

The difference between the highest price a buyer is willing to pay (bid) and the lowest price a seller is willing to accept (ask). A tight spread (e.g., $0.01) indicates a liquid market with efficient pricing. A wide spread suggests low liquidity or high uncertainty.

Binary Market

A prediction market with exactly two possible outcomes: Yes or No. The price of a Yes share represents the implied probability. Example: "Will Bitcoin exceed $100K by December 2026?" with Yes at $0.72 implies a 72% probability. Most markets on Polymarket and Kalshi are binary.

Black Swan Event

An extremely unlikely, high-impact event that markets fail to predict. Named after Nassim Taleb's concept. Prediction markets, like all forecasting tools, struggle with true black swan events because they have no historical precedent to price from. See our accuracy analysis for when markets get it wrong.

C

Calibration

A measure of how well market prices match actual outcome frequencies. A perfectly calibrated market means events priced at 70% happen exactly 70% of the time. Research shows major prediction markets are well-calibrated within 2-5 percentage points for high-liquidity events.

CFTC (Commodity Futures Trading Commission)

The US federal agency that regulates derivatives markets, including some prediction markets. Kalshi is CFTC-regulated, giving US traders legal protection. Polymarket previously settled with the CFTC in 2022 and now restricts US users from trading on certain markets. See our legal guide for details.

CLOB (Central Limit Order Book)

The matching engine used by modern prediction markets like Polymarket. Buy and sell orders are listed by price and matched automatically. Traders place limit orders specifying their desired price, and the CLOB pairs compatible buyers and sellers. This provides better price discovery than AMM-based systems.

Conditional Market

A prediction market where the outcome depends on another event occurring first. Example: "If Democrats win the Senate, will they pass healthcare reform?" These markets are useful for scenario analysis but typically have lower liquidity than standalone markets.

Contract

A tradeable unit in a prediction market that pays $1 if a specified event occurs and $0 otherwise. Each contract corresponds to a specific outcome (Yes or No). The contract price represents the market's implied probability for that outcome.

D

DCE (Designated Contract Market)

A CFTC-regulated exchange authorized to list derivatives products. Kalshi holds DCE status, making it the only CFTC-approved prediction market exchange in the US. This regulation provides legal certainty for US-based traders.

E

Edge

The advantage a trader has when they believe the true probability differs from the market price. If you estimate an event at 80% probability but the market prices it at 60%, your edge is 20 percentage points. Consistently finding and betting on edge is how successful prediction market traders profit.

Event

A real-world occurrence that a prediction market tracks. Events can range from elections and economic data releases to sports outcomes and cultural milestones. Each event may contain one or more individual markets. Browse active events on PredScope.

F

Fill

When a limit order is matched with a counterparty and the trade executes. A "partial fill" means only part of your order was matched. Markets with high liquidity typically fill orders faster and more completely.

Forecast

A probabilistic estimate of a future event's likelihood. Prediction market prices are forecasts expressed in dollar terms: a $0.75 share price forecasts a 75% probability. Multiple studies show prediction markets produce more accurate forecasts than expert panels and polls.

H

Hedging

Buying prediction market contracts to offset potential losses from real-world outcomes. Example: a business owner who would lose revenue if a tariff is imposed could buy Yes shares on a "tariff imposed" market. If the tariff happens, market gains offset business losses.

I

Implied Probability

The probability of an event occurring as derived from market prices. In prediction markets, the price of a Yes share directly equals the implied probability (e.g., $0.62 = 62% implied probability). On sportsbook-style platforms, implied probability is calculated from odds and typically includes a margin (vig).

Information Aggregation

The core function of prediction markets — collecting dispersed information from many traders into a single price signal. Each trader brings their own knowledge, analysis, and sources. The market price synthesizes all of this into a probability estimate, which is why prediction markets often outperform individual experts.

L

Limit Order

An order to buy or sell at a specific price or better. In prediction markets, you might place a limit order to buy Yes shares at $0.55. The order sits in the order book until someone is willing to sell at that price. Limit orders give you price control but may not execute immediately.

Liquidity

How easily you can buy or sell prediction market shares without significantly impacting the price. High-liquidity markets have many active traders, tight spreads, and deep order books. Popular markets on PredScope with millions in volume typically have excellent liquidity.

M

Market Maker

A trader or algorithm that provides liquidity by continuously posting buy and sell orders. Market makers profit from the bid-ask spread. On Polymarket, sophisticated market makers use bots to maintain tight spreads on popular markets, which benefits all traders.

Market Order

An order that executes immediately at the best available price. Market orders guarantee execution but not price. In low-liquidity prediction markets, large market orders can cause significant slippage — moving the price unfavorably as they consume available orders.

Multi-Outcome Market

A prediction market with more than two possible outcomes. Example: "Who will win the 2028 presidential election?" with shares for each candidate. The sum of all outcome prices should equal approximately $1.00. Browse election markets for examples.

N

No Share

A contract that pays $1 if the specified event does NOT occur. The No price equals (1 - Yes price). If Yes is trading at $0.70, No is at $0.30. Buying No shares is functionally equivalent to selling (shorting) Yes shares.

O

Order Book

A real-time list of all outstanding buy and sell orders for a market, organized by price. The order book shows available liquidity at each price level. Deeper order books (more shares available) indicate healthier, more liquid markets. See CLOB.

Outcome

A possible result of a prediction market event. Binary markets have two outcomes (Yes/No). Multi-outcome markets can have many (e.g., each candidate in an election). Each outcome has its own tradeable share with a price reflecting its implied probability.

P

Payout

The amount received when a market resolves. Winning shares (correct outcome) pay $1.00 each. Losing shares pay $0.00. If you bought Yes at $0.35 and the event occurs, your profit is $0.65 per share (a 186% return on investment).

Polymarket

The world's largest prediction market by trading volume. Founded in 2020, Polymarket operates on the Polygon blockchain using USDC stablecoin. It offers thousands of markets on politics, crypto, sports, and current events. Learn more in our Polymarket trading guide.

Position

The total number of shares you hold in a market. A "long" position means you own Yes shares (betting the event will happen). A "short" position means you own No shares (betting against). Your position's value changes as the market price moves.

R

Resolution

The process of determining a market's outcome and settling all contracts. When a market resolves, Yes shares either pay $1 (event happened) or $0 (event didn't happen). Resolution criteria are defined in advance and typically reference trusted third-party sources like official election results or news agencies.

Resolution Source

The authoritative reference used to determine a market's outcome. Examples: official election results, government data releases, court rulings, or news agency reports. Platforms define resolution sources in the market's description before trading begins.

S

Sharp Money

Large trades placed by professional or highly informed traders. Sharp money tends to move prices toward the true probability. When you see sudden large volume on a market, it often indicates sharp traders acting on information or analysis that the market hasn't yet incorporated.

Slippage

The difference between the expected price and the actual price at which a trade executes. Slippage occurs in low-liquidity markets when a large order consumes multiple price levels in the order book. Traders minimize slippage by using limit orders or splitting large orders.

Smart Contract

Self-executing code on a blockchain that manages prediction market logic. On Polymarket, smart contracts handle share creation, trading, and automatic payout when markets resolve. This eliminates counterparty risk — the platform can't refuse to pay winners.

T

Thin Market

A market with low trading volume and few active participants. Thin markets typically have wide bid-ask spreads, high slippage, and less reliable prices. For the most liquid markets, check PredScope's trending markets.

U

USDC (USD Coin)

A stablecoin pegged 1:1 to the US dollar. USDC is the currency used for trading on Polymarket. To trade, you deposit USDC (on the Polygon network) into your Polymarket wallet. USDC can be purchased on exchanges like Coinbase or converted from other cryptocurrencies.

V

Vig (Vigorish)

Also called "juice" or "margin." In traditional sportsbooks, the vig is the bookie's built-in profit margin. Most prediction markets like Polymarket have zero or minimal vig — Yes + No prices sum to approximately $1.00. Compare this to sportsbooks where the equivalent sum often exceeds $1.05-$1.10.

Volume

The total dollar value of shares traded in a market. Volume is a key indicator of market health and price reliability. High-volume markets ($1M+) tend to have better liquidity and more accurate prices. PredScope tracks volume for all active markets.

Y

Yes Share

A contract that pays $1 if the specified event occurs. The Yes share price equals the market's implied probability. If a Yes share trades at $0.80, the market estimates an 80% chance the event will happen. You profit by buying Yes shares below the true probability.