Prediction Market Glossary: 30+ Terms Every Trader Should Know
Prediction markets blend finance, crypto, and legal jargon. Here's a no-nonsense glossary of every term you'll see.
If you're new to prediction markets, the vocabulary can be a barrier — every market borrows terminology from securities trading, crypto, and regulatory law. This glossary covers everything you'll see on the major platforms, with a short definition and, where it matters, a note on why the term is contested.
Contract terms
Binary contract: A contract that pays $1 if an event happens and $0 if it doesn't. Sometimes called a Yes/No contract or event contract. Event contract: The CFTC's formal name for binary contracts on real-world events. Resolution source: The specific data source used to determine whether an event happened — a government release, a wire service, an on-chain metric. Position limit: The maximum contracts a single user can hold in one market, imposed by regulation (Kalshi, PredictIt) or platform policy (Polymarket).
Order and matching terms
Order book: The list of buy and sell orders for a market. Spread: The difference between the best bid and best ask. Slippage: The price movement that happens between when you click and when your order fills. Market maker: A trader (or algorithm) that posts both bids and asks to provide liquidity. Central limit order book (CLOB): The traditional exchange model — orders live in a public book and match against each other. Automated market maker (AMM): An alternative where trades execute against a formula-driven pool rather than a counterparty order.
Crypto terms
USDC: A US-dollar-pegged stablecoin issued by Circle, used as the unit of account on Polymarket. USDT: A competing stablecoin issued by Tether, less common in prediction markets. Gas: The fee paid in the chain's native token (MATIC on Polygon) to process a transaction. Wallet: Software that holds your private key and signs transactions. MetaMask, Rabby, and Polymarket's embedded wallet are common choices. Bridging: Moving funds from one chain to another via a bridge protocol. Polygon: A Layer 2 blockchain connected to Ethereum, used by Polymarket for low-cost settlement.
Oracle and resolution
Oracle: A system that brings real-world data on-chain. UMA: The optimistic oracle Polymarket uses to resolve markets — anyone can propose an outcome, and it's finalized unless disputed. Optimistic oracle: A model where proposals are accepted by default and only reviewed if challenged. Dispute: A formal challenge to a proposed outcome; resolved by UMA token holders. Settlement: Paying out winners after a market resolves. Ambiguity: A resolution criterion that can be read two ways, often the root cause of a UMA dispute.
Regulatory terms
CFTC: Commodity Futures Trading Commission, the US regulator for derivatives. Event contract: A binary contract on a real-world event, as defined by the CFTC. DCM: Designated Contract Market, the CFTC license category Kalshi holds. DCO: Derivatives Clearing Organization, which handles trade clearing — Kalshi operates its own. No-action letter: A formal statement from the CFTC that it will not pursue enforcement against a specific activity (PredictIt's basis for operating). Geoblocking: Restricting access based on user IP location. Preemption: The doctrine that federal regulation supersedes state law — the basis Kalshi uses to override state gaming objections.
Probability and pricing terms
Implied probability: The market price of a Yes contract, read as a probability (a $0.60 price implies a 60% chance). Fair value: The theoretical price of a contract given all available information — traders try to identify when market price differs from fair value. Vig / vigorish: The house edge in a sportsbook; prediction markets minimize vig by matching users against each other. Overround: The sum of implied probabilities across all outcomes of a mutually-exclusive event; in an efficient market it should equal 100%.
Worked example: putting it together
Suppose you see: "Kalshi lists an event contract at $0.65/$0.68 with a 5,000 position limit, resolving on the FOMC press release, cleared through Kalshi's DCO." Translated: the platform (a CFTC-approved DCM) lists a binary contract that pays $1 if the Fed makes the stated decision. You can buy at $0.68 or sell at $0.65 for up to 5,000 contracts total. The resolution source is a specific government release, and Kalshi's in-house clearing organization handles settlement.
Every phrase in that sentence would be jargon a month ago. Once the vocabulary lands, most of the mechanics become obvious.
Common pitfalls
Don't confuse binary contracts with binary options in the retail-broker sense — retail binary options had a bad reputation because of unregulated offshore brokers. CFTC-regulated event contracts are a different regulatory regime with real consumer protections.
Don't confuse spread (bid/ask distance) with slippage (price movement during execution). A tight spread with high slippage means someone else is trading fast and moving the market against you.