Understanding the language of prediction markets is essential for anyone looking to trade, research, or simply follow market-implied probabilities. This glossary covers more than 50 terms you will encounter across platforms like Kalshi, Polymarket, Robinhood, Manifold, and Metaculus.
A
Arbitrage
A risk-free profit opportunity created when the same event is priced differently across two or more platforms. For example, if Kalshi prices "Fed rate cut in June" at YES $0.40 and Polymarket prices the equivalent NO at $0.55, a trader can buy both for $0.95 total and guarantee a $1.00 payout — a $0.05 risk-free profit. Arbitrage opportunities are typically short-lived because traders quickly exploit them, bringing prices back into alignment.
Ask Price
The lowest price at which a seller is willing to sell a contract on the order book. If the ask price for a YES contract is $0.62, that is the cheapest price at which you can currently buy that contract. The ask is also called the "offer" on some platforms.
B
Bid Price
The highest price a buyer is currently willing to pay for a contract. If the bid on a YES contract is $0.58, that is the most someone will pay right now. The difference between the bid and ask is the spread.
Binary Contract
A contract that has exactly two possible outcomes: it either pays $1.00 (the event happens) or $0.00 (the event does not happen). Virtually all prediction market contracts on Kalshi, Polymarket, and similar platforms are binary contracts. Also called a "binary option" or "event contract."
Brier Score
A scoring metric used to evaluate the accuracy of probabilistic forecasts. It ranges from 0 (perfect accuracy) to 1 (worst possible). A Brier score of 0.25 is equivalent to random guessing on binary events. Metaculus has achieved a Brier score of approximately 0.111, indicating strong calibration.
C
Calibration
A measure of how well a forecaster's stated probabilities match actual outcomes over time. A perfectly calibrated forecaster who assigns 70% probability to events should see roughly 70% of those events actually occur. Calibration is the gold standard for evaluating prediction market accuracy.
CFTC (Commodity Futures Trading Commission)
The US federal agency that regulates prediction markets operating as designated contract markets. Kalshi received full CFTC approval in 2020 to operate as a DCM. The CFTC determines which types of event contracts are permissible and sets compliance requirements for platforms.
Close Price
The last traded price of a contract at the end of a trading session or when a market closes for new trading. Close prices are used in historical charts and performance analysis.
Contract
The fundamental tradable unit in a prediction market. Each contract is tied to a specific event and pays $1.00 if the specified outcome occurs or $0.00 if it does not. Contracts are bought and sold between traders at market-determined prices.
Counterparty
The person or entity on the other side of your trade. When you buy a YES contract, your counterparty is the seller. In centralized platforms like Kalshi, the exchange acts as an intermediary, reducing direct counterparty risk. In decentralized platforms, smart contracts serve this function.
D
DCM (Designated Contract Market)
A regulatory designation granted by the CFTC allowing an exchange to list and trade event contracts in the United States. Kalshi is the most prominent prediction market holding DCM status. This designation requires ongoing compliance with financial regulations, reporting, and consumer protection standards.
DeFi (Decentralized Finance)
A category of financial applications built on blockchain technology that operate without centralized intermediaries. Polymarket is the most prominent DeFi prediction market, running on the Polygon blockchain. DeFi prediction markets offer permissionless trading but may fall outside US regulatory frameworks.
E
Edge
The advantage a trader has when they believe the true probability of an event differs from the market price. If you estimate a 75% chance of an event occurring but the market prices it at $0.60, your perceived edge is 15 percentage points. Profitable trading requires consistently finding genuine edge.
Event Contract
The formal regulatory term for a prediction market contract. The CFTC classifies these as derivatives tied to the occurrence or non-occurrence of a defined event. This term is used in legal and regulatory contexts rather than casual trading discussion.
Expected Value (EV)
The average outcome of a trade if it were repeated many times, calculated as (probability of winning x payout) minus (probability of losing x cost). A positive expected value trade is one where the potential payoff, weighted by probability, exceeds the cost. Successful prediction market traders focus on making positive EV decisions consistently.
F
Fair Value
The price at which a contract should theoretically trade based on the true probability of the underlying event. If the true probability of an event is 65%, the fair value of a YES contract is $0.65. The difference between fair value and market price represents potential trading opportunity.
Fill
The execution of a trade order. A "full fill" means your entire order was completed at your specified price. A "partial fill" means only some of your contracts were traded, often because insufficient liquidity existed at your price. Fill rates are an important consideration in illiquid markets.
G
Gas Fee
A transaction fee paid on blockchain networks to process trades. On Polymarket, which operates on the Polygon network, gas fees are typically fractions of a cent. On Ethereum mainnet, gas fees can be substantially higher. Gas fees do not apply to centralized platforms like Kalshi.
H
Hedging
Using prediction market contracts to offset risk in another position or real-world exposure. A farmer might buy YES contracts on drought predictions to hedge crop revenue. A business exposed to election outcomes might trade election contracts to offset potential losses. Hedging is one of the economic justifications for prediction markets.
I
Implied Probability
The probability of an event as indicated by the current contract price. A YES price of $0.43 implies a 43% probability. Implied probability is the most common way to interpret prediction market data and is widely cited in media coverage of election and economic forecasts.
K
Kelly Criterion
A mathematical formula for determining optimal position sizing based on your edge and bankroll. The Kelly formula recommends betting a percentage of your bankroll equal to (edge / odds). Many prediction market traders use fractional Kelly (typically half or quarter Kelly) to reduce variance while still capitalizing on positive expected value opportunities.
KYC (Know Your Customer)
Identity verification requirements imposed by regulated prediction market platforms. Kalshi, Robinhood, FanDuel, and DraftKings all require KYC before allowing trading. This typically involves providing government-issued ID, Social Security number, and proof of address. Crypto-native platforms like Polymarket have historically had lighter KYC requirements.
L
Limit Order
An order to buy or sell a contract at a specific price or better. If you place a limit buy order at $0.45, it will only execute at $0.45 or lower. Limit orders give traders price control but may not fill if the market never reaches the specified price. They are the building blocks of the order book.
Liquidity
The ease with which contracts can be bought or sold without significantly affecting the price. A highly liquid market has many buyers and sellers, tight spreads, and minimal slippage. Low liquidity markets may have wide spreads and difficulty executing large orders. Liquidity is one of the most important factors in choosing which markets to trade.
Long
Holding a position that profits when the contract price goes up or the event occurs. Buying a YES contract puts you long on that outcome. If you buy YES at $0.50 and the event happens, you profit $0.50. Going long means you believe the event is more likely than the current price implies.
M
Maker
A trader who places a limit order that is added to the order book, providing liquidity for other traders. Makers "make" the market by posting prices at which they are willing to trade. Most platforms reward makers with lower fees because they contribute to market depth and tighter spreads.
Mana
The play-money currency used on Manifold Markets. Mana (represented as M$) cannot be withdrawn as real money, though Manifold allows limited charitable donations based on Mana balances. Mana-based markets are useful for forecasting topics that cannot be legally traded with real money.
Market Cap
In prediction markets, the total dollar value of all outstanding contracts in a particular market. A market with 100,000 contracts and a YES price of $0.60 has an approximate market cap reflecting total capital deployed. Higher market cap generally indicates more reliable price signals.
Market Maker
A participant (individual or algorithm) that continuously posts both buy and sell orders to provide liquidity. Market makers profit from the bid-ask spread and play a critical role in keeping prediction markets functional. Platforms like Kalshi use designated market makers to ensure minimum liquidity levels.
Market Order
An order to buy or sell a contract immediately at the best available price. Market orders guarantee execution but not price. In thin markets, large market orders can experience significant slippage as they fill across multiple price levels in the order book.
N
No Contract
A contract that pays $1.00 if the specified event does not occur and $0.00 if it does. Buying a NO contract is equivalent to betting against the event. If YES trades at $0.65, the NO contract should trade near $0.35, since the two prices must sum to approximately $1.00.
O
Odds
The representation of how likely an event is to occur. In prediction markets, odds are expressed as contract prices (which double as probabilities). A $0.80 YES price is equivalent to 80% probability, or 4:1 odds in favor. Unlike sports betting odds, prediction market prices are set by supply and demand rather than a bookmaker.
Open Interest
The total number of outstanding contracts in a given market that have not yet been settled. High open interest indicates strong participation and typically better liquidity. Open interest increases when new contracts are created and decreases when traders close positions or markets resolve.
Oracle
A mechanism for bringing real-world information onto a blockchain to resolve decentralized prediction markets. Polymarket uses UMA's optimistic oracle system, where outcomes are proposed and can be disputed within a challenge period. Oracle reliability is critical to the integrity of DeFi prediction markets.
Order Book
A real-time list of all outstanding buy and sell orders for a contract, organized by price level. The order book shows the depth of the market — how many contracts are available at each price. Traders use order book data to assess liquidity, identify support and resistance levels, and plan their entries and exits.
P
Payout
The amount a contract pays upon resolution. In standard binary prediction markets, winning contracts pay $1.00 and losing contracts pay $0.00. Your net profit is the payout minus the price you paid for the contract. Some platforms offer multi-outcome markets where payouts vary.
Play Money
Virtual currency that has no real-world cash value, used on platforms like Manifold Markets and Metaculus. Play-money prediction markets are not subject to gambling or financial regulations, allowing them to cover topics (like individual mortality or politically sensitive events) that regulated platforms cannot.
Polygon
A layer-2 blockchain network built on top of Ethereum that Polymarket uses for its smart contracts. Polygon offers significantly lower transaction fees and faster processing times compared to Ethereum mainnet, making it practical for the high-frequency, low-value transactions common in prediction markets.
Position
Your current holdings in a particular market. If you own 200 YES contracts in a market, that is your position. Position size, entry price, and current market price determine your unrealized profit or loss. Managing position sizes relative to your overall portfolio is a fundamental aspect of prediction market trading.
Probability
The estimated likelihood of an event occurring, expressed as a number between 0 and 1 (or 0% and 100%). In prediction markets, the contract price is the market-implied probability. A price of $0.55 means the crowd estimates a 55% chance of the event happening.
R
Resolution
The process by which a prediction market determines the outcome of a contract. Resolution criteria are defined before trading begins and specify exactly what conditions must be met, what sources are used, and how edge cases are handled. Ambiguous resolution criteria are a significant risk factor in prediction market trading.
ROI (Return on Investment)
The profit or loss on a trade expressed as a percentage of the initial investment. If you buy a contract at $0.40 and it resolves to $1.00, your ROI is 150% ($0.60 profit / $0.40 invested). ROI varies significantly by entry price — buying at $0.10 and winning yields 900% ROI, while buying at $0.90 and winning yields only 11%.
S
Settlement
The process of distributing payouts after a market resolves. On centralized platforms like Kalshi, settlement typically credits your account balance within minutes of resolution. On blockchain platforms, settlement involves a smart contract releasing funds, which may take longer depending on the oracle process.
Short
Holding a position that profits when the contract price falls or the event does not occur. Selling a YES contract (or buying a NO contract) puts you short on that outcome. Short positions profit when markets overestimate the probability of an event.
Slippage
The difference between the expected trade price and the actual execution price. Slippage typically occurs when placing large market orders in low-liquidity markets. If you expect to buy at $0.50 but your order fills at an average of $0.53, you experienced $0.03 of slippage.
Spread
The difference between the best bid price and the best ask price for a contract. A market with a bid of $0.58 and an ask of $0.62 has a $0.04 spread. Tighter spreads indicate better liquidity and lower trading costs. Spreads are a primary measure of market quality.
T
Taker
A trader who places a market order that fills against existing orders on the book, removing liquidity. Takers typically pay higher fees than makers because they consume rather than provide liquidity. Most retail traders are takers.
U
USDC (USD Coin)
A stablecoin pegged 1:1 to the US dollar, used as the settlement currency on Polymarket. Traders deposit USDC to fund their Polymarket accounts and receive USDC payouts when they win. USDC can be converted to fiat currency through cryptocurrency exchanges like Coinbase or Kraken.
V
Volume
The total value of contracts traded in a given market over a specific time period. Daily volume indicates how actively a market is being traded. High-volume markets typically have better liquidity, tighter spreads, and more reliable prices. Kalshi processed over $43 billion in total volume in 2025.
W
Wash Trading
The practice of simultaneously buying and selling the same contract to artificially inflate trading volume. Wash trading creates the illusion of market activity and can mislead other traders about liquidity and interest levels. It is illegal on regulated exchanges and considered manipulative on all platforms, though enforcement varies.
Y
Yes Contract
A contract that pays $1.00 if the specified event occurs and $0.00 if it does not. Buying a YES contract means you believe the event is more likely to happen than the current market price implies. YES contracts are the most commonly discussed contract type in prediction markets and their price is the standard way market probabilities are quoted.