The Complete Prediction Markets Glossary
Every term you'll encounter in prediction markets — from contract mechanics to trading jargon — explained clearly.
A
Adverse Selection The risk that the party you're trading against has better information than you. In prediction markets, market makers face adverse selection when informed traders buy or sell before market-moving news becomes public. As a retail trader, you face adverse selection any time you're on the wrong side of a trade with someone who knows more.
Aggregation The process by which prediction markets combine the beliefs of many participants into a single price. The theory — supported by decades of research — is that aggregated beliefs from diverse, independent participants often outperform expert forecasts. This is the core social value claim of prediction markets.
Ask The lowest price at which a seller is willing to sell a contract. Also called the "offer." If you want to buy immediately, you pay the ask price.
Arbitrage A trade that exploits a price discrepancy to earn a risk-free (or near risk-free) profit. In prediction markets, arbitrage typically refers to buying one side of a market on one platform and the other side on another platform where prices differ. Prediction Markets automatically highlights these opportunities.
B
Bankroll The total capital you've allocated to prediction market trading. Proper bankroll management — never risking too much on a single trade — is essential for long-term profitability.
Bid The highest price at which a buyer is willing to buy a contract. If you want to sell immediately, you sell at the bid price.
Bid-Ask Spread The gap between the bid and ask prices. Narrower spreads indicate higher liquidity. A spread of $0.01 is excellent; $0.05 or more suggests a thin market where trading costs are higher.
Binary Contract The standard prediction market contract. It has exactly two outcomes: it resolves to $1 (if the event happens) or $0 (if it doesn't). Also called a binary option or event contract.
Bookmaker (Bookie) A traditional sports betting operator that sets odds and takes the opposite side of your bet. Contrasted with prediction markets, where you trade against other participants rather than a house.
C
CFTC (Commodity Futures Trading Commission) The US federal regulator that oversees prediction markets, treating event contracts as derivatives under the Commodity Exchange Act. Kalshi was the first CFTC-licensed prediction market exchange (2024). Polymarket gained CFTC approval via its QCEX acquisition (2025).
Conditional Market A market whose resolution is contingent on another event occurring first. Example: "Will candidate X win the general election, conditional on winning the primary?" These require extra care to interpret.
Contract The basic unit of a prediction market trade. Each contract pays $1 at resolution if the specified outcome occurs. Contracts are priced between $0.01 and $0.99.
Convergence When two platforms that were showing different prices for the same market start moving toward each other. Convergence closes arbitrage opportunities.
Counterparty The other party in your trade. In a centralised prediction market, the exchange matches you with another trader. In a decentralised market (Polymarket), smart contracts handle the counterparty function.
D
DCM (Designated Contract Market) The CFTC designation that allows an exchange to list financial derivatives contracts, including event contracts. Kalshi is the primary prediction market DCM in the US.
Dead Market A market with very low trading volume and wide bid-ask spreads. Dead markets are difficult to exit at fair prices and often have unreliable price signals. Avoid trading in markets with very low volume.
Decay The tendency for long-duration contracts to drift toward the eventual outcome as resolution approaches. Similar to time decay in options, but the mechanism is uncertainty reduction rather than optionality.
Divergence When two platforms show meaningfully different prices for the same market. Divergence creates arbitrage opportunities and indicates that the two platforms' trader pools have different views.
E
Edge Your advantage over the market price. If you believe an event has a 70% probability and the market shows 60%, you have a 10-point edge. Edge is the only sustainable source of profit in prediction markets.
Event Contract The formal regulatory term for a prediction market contract. Used by the CFTC to describe binary contracts that settle on real-world event outcomes.
Expected Value (EV) The probability-weighted average of all possible outcomes. Positive EV trades are profitable in the long run; negative EV trades lose money over time. EV = (probability of winning × profit) - (probability of losing × loss). Only take trades with positive expected value.
F
Fade To take the opposite side of a market move. "Fading the overreaction" means buying when a market drops sharply on news you think was overinterpreted. A common and often profitable strategy.
Fill When your order is matched with a counterparty and the trade executes. Limit orders may not fill immediately; market orders fill instantly at the current ask (buy) or bid (sell).
Float Capital locked in open positions while waiting for resolution. Opportunity cost of the float is an important consideration when evaluating longer-duration trades.
G
Gamma Borrowed from options trading — the rate at which a contract's sensitivity to new information changes. Near-50% markets have high gamma: new information moves the price a lot. Near-0% or 100% markets have low gamma: new information has minimal price impact.
H
Hedging Using prediction market contracts to offset risk in another position. Example: A portfolio manager holding tech stocks might buy "Fed raises rates" contracts as a hedge, since rate hikes typically hurt tech valuations.
House Edge In traditional betting, the built-in advantage the bookmaker has over bettors (see: Vig). Prediction markets don't have a house edge in the traditional sense — the platform collects explicit fees instead.
I
Implied Probability The probability implied by a contract's price. A contract at $0.73 implies a 73% probability. This is the market's collective assessment of the likelihood of the event.
Informed Trader A participant who has better information or analysis than the average market participant. Unlike sports betting (where sharp bettors are banned), prediction markets welcome informed traders — their activity improves price accuracy.
Information Aggregation The core mechanism of prediction markets: prices incorporate the dispersed information and beliefs of all participants. The result often outperforms expert forecasts and polls.
L
Limit Order An order to buy or sell at a specific price or better. Limit orders don't execute immediately — they sit in the order book until matched. They're more cost-effective than market orders but may not fill quickly.
Liquidity The ease with which you can buy or sell a contract without significantly moving the price. High-liquidity markets have many active traders, tight bid-ask spreads, and large order books. Low-liquidity markets have wide spreads and thin order books.
Long Holding a "Yes" position — you profit if the event happens. The equivalent of being bullish on the outcome.
M
Market Maker A trader (individual or firm) that continuously posts both buy and sell prices, providing liquidity to the market. Market makers earn the bid-ask spread but take inventory risk.
Market Order An order to buy or sell immediately at the best available price. Fast but potentially more expensive than limit orders in illiquid markets.
Maturity Date / Resolution Date The date on which a prediction market contract is settled. Contracts can be sold before this date, but they resolve definitively on or after the event it tracks.
N
No The losing side of a Yes/No contract. A "No" contract at $0.28 pays $1 if the event does NOT happen. Equivalent to buying "Yes" at $0.72 from the market maker's perspective.
Normalisation The process of converting prices from different platforms into a standard format. Polymarket expresses prices as decimals (0.62); Kalshi as integers or decimals (62 or 0.62). Prediction Markets normalises both to consistent percentage format.
O
Open Interest The total value of outstanding contracts in a market. High open interest indicates significant trader commitment. Useful context alongside volume when assessing market quality.
Oracle In decentralised prediction markets (like Polymarket), the oracle is the system that determines how markets resolve. Polymarket uses UMA Protocol as its resolution oracle. Disputes about resolution go through the oracle's dispute resolution mechanism.
Order Book The live record of all outstanding buy and sell orders, organised by price. Shows you the current bid, ask, and available liquidity at various price levels.
P
Position Your current holding in a market. Can be long Yes, long No, or flat (no position). Your P&L fluctuates with the market price until you sell or the market resolves.
Price Discovery The process by which markets find the "correct" price through the trading activity of many participants. Prediction markets are particularly valued for their price discovery function on uncertain events.
Probability-Weighted Adjusted for the likelihood of different outcomes. Kalshi's fee structure is probability-weighted: fees are highest near 50% (maximum uncertainty) and lowest near 0% or 100% (near-certainty).
R
Resolution The determination of a prediction market's outcome after the relevant event has occurred. When a market resolves Yes, Yes contracts pay $1 and No contracts pay $0. When it resolves No, the reverse applies.
Resolution Criteria The specific, written rules that determine how a market resolves. These are more important to read carefully than the market's headline question — resolution criteria can specify exact definitions that differ from intuitive interpretations.
Resolution Oracle See "Oracle."
Risk Premium The extra return required for taking on uncertainty. Markets where the outcome is genuinely 50/50 command a risk premium relative to near-certain outcomes — reflected in the higher fees on near-50% markets on Kalshi.
S
Settlement The payment of profits after resolution. Kalshi settles in USD to your account balance. Polymarket settles in USDC directly to your connected wallet.
Short Holding a "No" position — you profit if the event does NOT happen. Equivalent to being bearish on the outcome.
Slippage The difference between the expected price of a trade and the actual executed price. Occurs in illiquid markets when your order is large enough to move the price against you.
Smart Contract A self-executing contract on a blockchain. Polymarket uses smart contracts to hold funds and automatically settle resolved markets, removing the need to trust a central party with your funds.
Spread
- The bid-ask spread (gap between buy and sell prices in a market).
- The cross-platform spread (difference in probability between Kalshi and Polymarket for the same market). Prediction Markets highlights spreads > 2pp as potential arbitrage opportunities.
Stablecoin A cryptocurrency designed to maintain a stable value relative to a fiat currency. Polymarket uses USDC (USD Coin), which is pegged 1:1 to the US dollar. Holding USDC is functionally similar to holding dollars, but on the blockchain.
T
Thin Market A market with low liquidity — few active traders, wide spreads, low volume. Thin markets are easier to manipulate, harder to exit at fair prices, and less reliable as probability signals.
Trade URL / Deep Link A direct link to a specific market on Kalshi or Polymarket. Prediction Markets's "Trade" buttons use deep links to take you directly to the relevant market on the platform with the best price.
U
USDC USD Coin — a dollar-pegged stablecoin used by Polymarket. 1 USDC = $1.00 at all times. The blockchain equivalent of a dollar.
V
Vig / Vigorish / Juice The hidden margin in traditional sports betting — the bookmaker's edge embedded in distorted odds. A -110/-110 market (where both sides should be even money) has ~4.5% vig. Prediction markets have explicit fees instead of hidden vig.
Volume The total value of contracts traded in a period (usually 24 hours). High volume indicates active trading, better liquidity, and more reliable price signals. Prediction Markets sorts markets by 24h volume by default.
Volume-Weighted Average When Prediction Markets aggregates probabilities from Kalshi and Polymarket for the same market, it weights each platform's probability by its relative volume. The higher-volume platform has more influence on the displayed aggregate probability.
W
Watchlist A personalised list of markets you're monitoring. Prediction Markets Pro users can save markets to a watchlist for quick access and set alerts when prices move.
Wisdom of Crowds The phenomenon where aggregate predictions from large, diverse groups often outperform individual expert predictions. The theoretical basis for why prediction markets can be such accurate forecasting tools.
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