Prediction Market Glossary

290+ terms covering prediction market trading, DeFi, blockchain, probability, and market mechanics.

A

Accumulator Bet: A single wager that combines multiple independent predictions. All selections must resolve correctly for the bet to pay out, offering higher potential returns but lower probability of winning.
Adverse Selection: When better-informed traders consistently take the opposite side of less-informed participants. Market makers face adverse selection when they can't distinguish skilled traders from noise traders.
Alpha: Returns earned above a benchmark or expected value. In prediction markets, alpha comes from identifying mispricings before other participants correct them.
AMM (Automated Market Maker): A smart contract that provides liquidity and sets prices algorithmically instead of relying on traditional order books. Traders buy and sell directly against the AMM's liquidity pool.
Arbitrage: Profiting from price differences for the same outcome across different markets or platforms. If one market prices an event at 60% and another at 40%, an arbitrageur can guarantee profit by buying both.
Ask Price: The lowest price at which a seller is willing to sell shares. Also called the offer price. The gap between bid and ask is the spread.

B

Backtest: Analyzing how a trading strategy would have performed using historical market data. Helps identify whether an approach has genuine predictive value or just got lucky.
Bankroll: The total amount of capital a trader has available for placing bets. Proper bankroll management is critical to surviving losing streaks and staying in the game long-term.
Bayesian Updating: A mathematical method for revising probability estimates as new evidence arrives. Prediction market prices naturally reflect Bayesian updating as traders incorporate news.
Bid Price: The highest price a buyer is willing to pay for shares. Represents current demand at that price level.
Bid-Ask Spread: The difference between the highest bid and lowest ask price. Tighter spreads indicate more liquidity. Wide spreads make trading more expensive.
Binary Market: A market with only two possible outcomes: Yes or No. The most common type of prediction market. Shares pay out $1 if the outcome occurs, $0 if it doesn't.
Binary Option: A financial contract that pays a fixed amount if a condition is met at expiration, and nothing otherwise. Prediction market shares function as binary options.
Block Trade: A large order executed outside the regular order book to avoid moving the market price. Common in institutional prediction market trading.
Blockchain: A distributed ledger that records transactions across many computers. Decentralized prediction markets use blockchains to ensure transparent and tamper-proof settlement.
Book: The collected set of all outstanding bets or orders in a market. A market maker 'runs a book' by managing both sides of available trades.
Brier Score: A scoring rule that measures prediction accuracy. Ranges from 0 (perfect) to 2 (worst possible). Calculated as the mean squared difference between predicted probabilities and actual outcomes.
Basis Point: One hundredth of a percentage point (0.01%). Used for precision when discussing small probability changes or fee rates.
Breakeven Price: The price at which a trade neither profits nor loses. Equals your entry price plus any fees. Important for deciding when to exit.
Bridge: A protocol that transfers tokens between different blockchain networks. Needed when prediction markets operate on different chains than where your assets live.

C

Calibration: How well predicted probabilities match actual frequencies. A well-calibrated forecaster's 70% predictions come true about 70% of the time.
Canton Network: A privacy-enabled blockchain network designed for institutional-grade smart contracts. Uses Daml for safe, composable applications with built-in privacy guarantees.
CBTC (Canton Bitcoin): A tokenized representation of Bitcoin on the Canton Network. Used as collateral and settlement currency in Canton-based prediction markets.
Categorical Market: A market with more than two discrete outcomes. For example, 'Which party wins the election?' with options for multiple parties.
Censorship Resistance: The property of decentralized systems that prevents any single authority from blocking or reversing transactions. Key advantage of blockchain-based prediction markets.
Central Limit Order Book (CLOB): A trading system that matches buy and sell orders by price and time priority. Traditional exchanges and some prediction markets use CLOBs.
Close Price: The final trading price of a share when a market closes for resolution. May differ from the resolution value if the outcome was uncertain until the end.
Collateral: Assets locked up to back a position. In prediction markets, collateral ensures traders can cover their obligations when markets resolve.
Complete Market: A set of prediction markets that covers every possible outcome of an event. A complete market for an election would have a contract for each candidate.
Conditional Market: A market that only activates or resolves based on the outcome of another event. For example, 'If candidate X wins, will policy Y pass?' Only relevant if X actually wins.
Consensus Mechanism: The process by which blockchain nodes agree on the current state of the ledger. Different mechanisms (proof of work, proof of stake) have different tradeoffs.
Constant Function Market Maker (CFMM): A type of AMM where a mathematical invariant governs the relationship between token reserves. Common variants include constant product (xy=k) and constant sum formulas.
Continuous Double Auction: A market structure where buyers and sellers can submit orders at any time, and trades execute whenever a bid meets or exceeds an ask.
Contract: A tradeable instrument in a prediction market representing a specific outcome. Each contract pays a fixed amount if the linked event occurs.
Counterparty: The person or entity on the other side of your trade. In peer-to-peer markets, your counterparty is another trader. In AMM markets, the smart contract acts as counterparty.
Counterparty Risk: The chance that the other side of a trade fails to fulfill their obligations. Decentralized markets reduce this risk through smart contract escrow.
Crowd Wisdom: The principle that aggregated predictions from diverse, independent thinkers often outperform individual experts. Prediction markets are a mechanism for extracting crowd wisdom.
Closing Bell: The moment a market stops accepting new trades before resolution. Some markets close at a specific time; others close when a triggering event occurs.
Cold Wallet: An offline cryptocurrency wallet disconnected from the internet. Safer for long-term storage but less convenient for active trading.
Combinatorial Market: A market that lets you bet on combinations of outcomes across multiple questions simultaneously. For example, 'Team A wins AND the total score is over 50.'
Commission: A fee charged by the platform on each trade or on winnings at resolution. Different platforms have different commission structures.
Confirmation Bias: The tendency to search for and favor information that confirms your existing beliefs. A common pitfall that causes traders to hold losing positions too long.
Conviction: How strongly a trader believes in their position. High conviction leads to larger position sizes. Overconfidence can be costly.
Correlation: The degree to which two outcomes tend to move together. Betting on correlated outcomes concentrates risk more than diversifying across uncorrelated markets.
Cost Basis: The total amount paid to acquire your position, including fees. Used to calculate profit or loss when shares are sold or resolved.
Cross-Chain: Interoperability between different blockchain networks. Cross-chain prediction markets let users trade using assets from multiple chains.
Custody: Who controls your funds. Centralized platforms hold custody (they manage your money). Decentralized platforms use self-custody (you control your keys).

D

Daml: A smart contract language built for multi-party workflows with privacy. Used on Canton Network to create prediction market contracts with fine-grained access control.
Dark Pool: A private trading venue where orders aren't visible to other participants until they execute. Reduces market impact for large trades.
Decentralized: Operating without a central authority or single point of control. Decentralized prediction markets run on blockchain networks and can't be shut down by any one party.
Decentralized Autonomous Organization (DAO): A blockchain-based organization governed by smart contracts and token holder votes rather than traditional management. Some prediction market platforms are managed by DAOs.
Decentralized Exchange (DEX): A trading platform that operates through smart contracts without intermediaries. Prediction market shares can trade on DEXs.
Delta: The rate of change in a contract's price relative to a change in the underlying probability. In binary markets, delta approximates 1 since price tracks probability directly.
Depth: The amount of liquidity available at each price level in an order book. Deep markets can absorb large trades without significant price movement.
Deterministic Resolution: A market outcome that can be verified objectively without human judgment. 'Did BTC close above $100K on Dec 31?' is deterministic.
DeFi (Decentralized Finance): Financial services built on blockchain without traditional intermediaries. Prediction markets are a major DeFi category.
Discount: When shares trade below their expected value. A market trading at 30 cents for an outcome the buyer believes has a 50% chance represents a discount.
Dispersion: How spread out prices or probabilities are across related markets. High dispersion between platforms suggests inefficiency or arbitrage opportunity.
Dutch Auction: An auction where the price starts high and decreases until a buyer accepts. Sometimes used for initial share distribution in prediction markets.
Dead Market: A market with no recent trading activity. Prices in dead markets may not reflect current information and should be treated skeptically.
Decentralized Oracle Network: A system of independent nodes that collectively provide verified real-world data to smart contracts. Chainlink and UMA are examples used by prediction markets.
Dispute Resolution: The process for handling disagreements about how a market should resolve. Can involve appeals, voting, or escalation to a governance body.
Divergence: When a prediction market price moves away from the consensus of other information sources. Can signal either market inefficiency or that the market has unique information.
Diversification: Spreading bets across multiple uncorrelated markets to reduce overall portfolio risk. A core risk management principle.
Double Spend: Attempting to use the same cryptocurrency for two different transactions. Blockchains prevent double spending through consensus mechanisms.
Drawdown: The decline from a peak portfolio value to a trough. Maximum drawdown measures the worst loss a trader has experienced.
Dutch Book: A set of bets that guarantees a loss regardless of the outcome. If a market's implied probabilities don't sum to 100%, a Dutch book opportunity may exist.

E

Edge: A trader's informational or analytical advantage over the market price. If you believe an event has a 70% chance but the market says 55%, your edge is 15 percentage points.
Efficient Market Hypothesis (EMH): The theory that market prices reflect all available information. Prediction markets are often studied as tests of EMH since they aggregate diverse information sources.
Epoch: A defined time period in a protocol's operation. Some prediction market platforms use epochs for batching trades, distributing rewards, or updating parameters.
Escrow: Funds held by a neutral third party (or smart contract) until trade conditions are met. Prediction markets use escrow to guarantee payouts on resolution.
Event Contract: A financial instrument whose value depends on the outcome of a specific real-world event. Prediction market shares are event contracts.
Exchange: A platform that facilitates buying and selling of prediction market contracts. Can be centralized (like Kalshi) or decentralized (like Polymarket).
Execution Price: The actual price at which a trade is filled. May differ from the quoted price due to slippage, especially in thin markets.
Expected Value (EV): The probability-weighted average of all possible outcomes. A bet with positive EV (+EV) is profitable in the long run. Calculated as (probability x payout) minus cost.
Expiration: The date and time when a market stops trading and moves to resolution. After expiration, shares are worth either their payout value or zero.
Early Resolution: When a market resolves before its scheduled expiration because the outcome becomes known early.
Endowment Effect: The tendency to overvalue shares you already own compared to identical shares you don't have. Can prevent rational position management.
Entry Point: The price at which you open a position. A good entry point means buying when the price is below your estimated fair value.
Exit Strategy: Your plan for when and how to close a position. Can be based on a target price, time limit, or change in your probability estimate.
Exotic Market: A prediction market on an unusual or niche topic. Can have wider spreads and less reliable prices due to lower participation.

F

Fair Value: The theoretical 'correct' price of a contract based on the true probability of the outcome. Markets are considered efficient when trading prices are close to fair value.
Fee: A charge applied to trades by the platform. Can be a flat rate per trade, a percentage of the trade value, or built into the spread.
Fill: When an order gets executed. A 'partial fill' means only some of your order was matched. A 'full fill' means the entire order traded.
Flash Crash: A sudden, sharp drop in prices that recovers quickly. Can happen in prediction markets when large sell orders hit thin order books.
Floor Price: The minimum price a contract can trade at. In binary markets, the theoretical floor is $0 (outcome won't happen) but practical floors may be slightly higher.
Forecasting: The practice of estimating probabilities for future events. Prediction markets are a market-based approach to forecasting.
Fork: A change in a blockchain's protocol rules. Can affect prediction markets built on that chain by creating parallel versions or requiring migration.
Front-Running: Trading ahead of a known incoming order to profit from the expected price impact. MEV bots can front-run prediction market trades on public blockchains.
Funding Rate: Periodic payments between long and short position holders to keep perpetual contract prices aligned with the spot market. Some prediction market designs use similar mechanisms.
Futures Contract: An agreement to buy or sell an asset at a set price on a future date. Prediction market contracts share similarities with futures but resolve to binary outcomes.
Fade: To bet against the prevailing market consensus. Fading popular sentiment can be profitable when the crowd overreacts.
Fat Finger Error: An accidentally large or mispriced order caused by a typing mistake. Can create brief anomalous prices that other traders exploit.
Fibonacci Retracement: A technical analysis tool based on key ratios. Rarely applicable to prediction markets since prices are bound between $0 and $1.
First Mover: The first trader to act on new information. First movers capture the most profit but also face the highest uncertainty.
Fixed Odds: A betting system where the payout is determined at the time of the bet, regardless of future price movements. Limit orders in prediction markets create fixed-odds positions.
Flash Loan: An uncollateralized DeFi loan that must be repaid within a single transaction. Could theoretically be used to manipulate prediction market prices temporarily.
Fundamental Analysis: Evaluating the true probability of an outcome based on underlying factors, data, and domain knowledge rather than price patterns.

G

Gas Fee: The cost of executing a transaction on a blockchain network. Traders on decentralized prediction markets pay gas fees for every trade, claim, and deposit.
Governance: The system by which decisions about protocol rules, fees, and upgrades are made. Decentralized prediction markets often use token-based governance.
Governance Token: A cryptocurrency that grants holders voting rights over protocol decisions. Some prediction market platforms issue governance tokens to active participants.
Gambler's Fallacy: The mistaken belief that past random events affect future probabilities. A coin landing heads 10 times doesn't make tails more likely next flip.
Good 'Til Cancelled (GTC): An order type that remains active until explicitly cancelled or the market expires. Default for most prediction market limit orders.

H

Hedge: Using a prediction market position to offset risk from another investment or real-world exposure. A farmer might buy shares in 'Will there be a drought?' to hedge crop risk.
Haircut: A reduction in the recognized value of collateral. A platform might accept crypto collateral but apply a 10% haircut to account for volatility.
Hot Wallet: An internet-connected cryptocurrency wallet used for active trading. More convenient but less secure than cold storage.

I

Iceberg Order: A large order split into smaller visible portions. Only a fraction of the total order is shown in the book, hiding the trader's full intent.
Illiquid: A market with low trading volume and wide spreads. Illiquid markets are harder to enter and exit without affecting the price.
Implied Probability: The probability of an outcome as suggested by the market price. A share trading at $0.65 implies a 65% chance of that outcome occurring.
Impermanent Loss: The temporary loss liquidity providers face when the price ratio of pooled assets changes. AMM-based prediction market LPs can experience this.
Index Market: A market that tracks a composite value rather than a single event. For example, a market on the total number of seats a party wins.
Information Aggregation: The process by which prediction market prices combine private knowledge from many participants into a single probability estimate.
Information Asymmetry: When some market participants have access to information that others don't. Skilled traders exploit information asymmetry to profit.
Initial Liquidity: The starting pool of funds that enables trading in a new market. AMMs require initial liquidity before anyone can trade.
In-the-Money: A position that would be profitable if the market resolved right now. Yes shares are in-the-money when the price is above your purchase price.
Incentive Compatibility: A market design property where participants are rewarded for reporting their true beliefs. Well-designed prediction markets are incentive compatible.
Information Market: Another name for prediction markets, emphasizing their role in aggregating information from diverse sources into a single price signal.
Insider Trading: Trading based on material non-public information. Controversial in prediction markets because allowing insider trading could actually improve price accuracy.

J

Jump Risk: The risk of sudden, large price movements when unexpected news breaks. Prediction markets are especially vulnerable around scheduled announcements.

K

Kelly Criterion: A formula for calculating the optimal bet size based on your edge and bankroll. Bet fraction = (bp - q) / b, where b is odds, p is win probability, q is loss probability.
Know Your Customer (KYC): Identity verification requirements imposed by regulators. Centralized prediction markets like Kalshi require KYC. Decentralized platforms often don't.

L

Last Price: The price at which the most recent trade was executed. Can differ from the current bid or ask, especially in slow-moving markets.
Latency: The time delay between submitting an order and it being executed. Lower latency gives traders an advantage in fast-moving markets.
Layer 2 (L2): A secondary blockchain built on top of a Layer 1 chain to improve speed and reduce costs. Some prediction markets deploy on L2s for cheaper transactions.
Leverage: Using borrowed funds or structured products to amplify potential returns (and losses). Some prediction market designs allow leveraged positions.
Limit Order: An order to buy or sell at a specific price or better. The trade only executes if the market reaches your price. Gives you price control but no guarantee of execution.
Liquidity: How easily you can buy or sell shares without moving the price. High liquidity means tight spreads and fast execution. Low liquidity means you'll pay more to trade.
Liquidity Mining: Earning token rewards for providing liquidity to a protocol. Some prediction market platforms incentivize liquidity providers this way.
Liquidity Pool: A smart contract holding paired assets that enables decentralized trading. AMM-based prediction markets use liquidity pools instead of order books.
Liquidity Provider (LP): A participant who deposits funds into a liquidity pool or places orders on both sides of the book. LPs earn fees but take on risk from adverse selection.
LMSR (Logarithmic Market Scoring Rule): A popular AMM algorithm for prediction markets created by Robin Hanson. Prices adjust logarithmically with each trade, ensuring infinite liquidity at increasingly expensive prices.
Long: Holding a position that profits when the price goes up. Buying Yes shares is going long on that outcome happening.
Loss Aversion: The psychological tendency to feel losses more strongly than equivalent gains. Can cause traders to hold losing positions too long or cut winners too short.
Locked Liquidity: Funds committed to a market that can't be withdrawn until resolution. Represents an opportunity cost for the capital provider.

M

Maker: A trader who adds liquidity to the order book by placing limit orders. Makers typically pay lower fees because they improve market quality.
Manipulation: Intentionally moving market prices to create a false signal. Prediction markets are generally resistant to sustained manipulation because it creates profit opportunities for others.
Margin: The collateral required to open or maintain a position. In some prediction market structures, traders must post margin against potential losses.
Margin Call: A demand to deposit additional funds when a position's losses approach the posted margin. Forces traders to either add capital or close positions.
Market Capitalization: The total value of all outstanding shares in a prediction market. Calculated as the number of shares times the current price.
Market Depth: The volume of orders at various price levels in the order book. Deep markets can handle large trades without significant price impact.
Market Maker: A participant who continuously provides buy and sell quotes. Market makers profit from the spread while taking on risk from price movements.
Market Order: An order to buy or sell immediately at the best available price. Guarantees execution but not price. Can experience significant slippage in thin markets.
Market Resolution: The process of determining the outcome and settling positions after an event occurs. Resolution can be automatic (oracle-based) or manual (human committee).
Maximal Extractable Value (MEV): Profit that miners or validators can extract by reordering, including, or excluding transactions. Affects prediction markets on public blockchains through front-running and sandwich attacks.
Mean Reversion: The tendency for prices to move back toward their long-term average. In prediction markets, prices that overshoot on news often partially revert as the initial reaction fades.
Minting: Creating new prediction market shares. In binary markets, you can mint a complete set (one Yes + one No) for $1, then sell the side you don't want.
Moral Hazard: When a market participant can influence the outcome they're betting on. Some topics are excluded from prediction markets because of moral hazard concerns.
Multi-Outcome Market: A market with three or more possible results. All outcome shares should sum to $1 (or 100%). Also called a categorical or multiple-choice market.
Matching Engine: The system that pairs buy and sell orders. Determines execution order based on price priority and time priority.
Mid Price: The midpoint between the best bid and best ask. Often used as a reference price when neither the bid nor ask fairly represents value.
Momentum: The tendency for prices that have been moving in a direction to continue moving that way. In prediction markets, momentum often follows new information releases.
Money Line: An American odds format expressing the payout on a $100 bet. +200 means you'd win $200 on a $100 bet. Common in sports betting, less so in prediction markets.

N

Negative Expected Value (-EV): A bet where the expected return is less than the cost. Over time, making -EV bets guarantees losses. The house edge in casinos is an example.
No Shares: Shares that pay out $1 if the event does NOT happen and $0 if it does. The mirror image of Yes shares. If Yes trades at $0.60, No should trade at $0.40.
Noise Trader: A participant who trades on incomplete information, emotion, or random signals rather than fundamental analysis. Noise traders create opportunities for informed traders but also add liquidity.
Notional Value: The total value of a position based on the face value of the contracts held, regardless of how much was actually paid.
Net Position: Your overall exposure after netting out offsetting positions. If you hold 100 Yes and 40 No shares, your net position is 60 long Yes.

O

Odds: A way of expressing probability. Can be stated as decimal (2.50), fractional (3/2), or American (+150). Prediction market prices convert directly to implied probability.
On-Chain: Activity recorded directly on a blockchain. On-chain prediction markets have fully transparent trade histories and settlement.
Open Interest: The total number of outstanding contracts that haven't been settled. High open interest indicates strong trader engagement in a market.
Oracle: A system that feeds real-world data to smart contracts. Prediction markets rely on oracles to determine outcomes and trigger settlement.
Oracle Attack: Manipulating the data feed that an oracle reports, causing markets to resolve incorrectly. A major security concern for decentralized prediction markets.
Order Book: A list of all pending buy and sell orders arranged by price. Shows the depth of demand and supply at each price level.
Outcome: One of the possible results an event can produce. A binary market has two outcomes (Yes/No). A categorical market can have many.
Out-of-the-Money: A position that would be unprofitable if the market resolved right now. Holding Yes shares bought at 70 cents when the market price drops to 40 cents.
Overround: When the implied probabilities of all outcomes sum to more than 100%. The excess represents the market maker's built-in profit margin. Also called vigorish or vig.
Orderflow: The stream of buy and sell orders entering a market. Analyzing orderflow helps traders understand what other participants are doing.
Outcome Token: A blockchain token representing a claim on a specific outcome in a prediction market. Can be traded, transferred, or redeemed.
Overbought: When a market has risen quickly and the price may be higher than the true probability justifies. Often a sign that a correction is coming.
Oversold: When a market has fallen quickly and the price may be lower than the true probability justifies. Potential buying opportunity.

P

Paper Trading: Simulated trading with fake money to test strategies without financial risk. Useful for learning prediction market mechanics before committing real capital.
Pari-Mutuel: A betting system where all wagers go into a pool, and payouts are calculated based on the pool's total divided among winners. Different from fixed-odds markets.
Payout: The amount received when a market resolves in your favor. In standard binary markets, winning shares pay $1 each.
Peer-to-Peer (P2P): Direct trading between individuals without an intermediary. Some prediction market designs match bets directly between opposing traders.
Perpetual Market: A prediction market without a fixed expiration date. Resolves based on a trigger condition rather than a calendar date.
Permissioned Blockchain: A blockchain where participation is restricted to approved entities. Canton Network is permissioned, offering privacy guarantees not available on public chains.
Platform Risk: The chance that the prediction market platform itself fails, gets hacked, or shuts down before markets resolve.
Position: The shares you currently hold in a market. A 'long Yes' position means you own Yes shares. A 'flat' position means you hold no shares.
Position Sizing: Deciding how much of your bankroll to allocate to a single bet. The Kelly Criterion is one approach to optimal position sizing.
Positive Expected Value (+EV): A bet where the expected return exceeds the cost. Consistently making +EV bets is the foundation of profitable prediction market trading.
Premium: When shares trade above their expected value. The market may be pricing in information, sentiment, or simply have low liquidity pushing prices up.
Price Discovery: The process by which trading activity reveals the market's consensus probability for an outcome. One of the primary functions of prediction markets.
Price Impact: How much a trade moves the market price. Larger orders have more impact, especially in low-liquidity markets.
Privacy: The ability to keep trading activity and positions confidential. Canton Network provides sub-transaction privacy not available on most public blockchains.
Probability: A number between 0 and 1 (or 0% and 100%) representing the likelihood of an event occurring. Prediction market prices are interpreted as probabilities.
Profit and Loss (P&L): The net gain or loss from your trading positions. Calculated as the value of shares at resolution (or current price) minus the cost of acquiring them.
Protocol: The set of rules governing how a decentralized prediction market operates, including trading mechanics, fee structures, and resolution procedures.
Pseudonymous: Operating under a wallet address rather than real identity. Most decentralized prediction markets allow pseudonymous participation.
Parimutuel Pool: A betting pool where all wagers are collected and divided among winners proportionally. The final odds aren't known until betting closes.
Prediction Tournament: An organized forecasting competition where participants make predictions on a set of questions. Results are scored for accuracy over time.
Price Ceiling: The maximum price a contract can reach, which is $1 in standard binary prediction markets (representing 100% probability).
Price Floor: The minimum price a contract can reach, approaching $0 in standard binary prediction markets (representing 0% probability).
Provably Fair: A system where the fairness of outcomes can be mathematically verified. Blockchain-based prediction markets can be provably fair through transparent smart contracts.
Put Option: In traditional finance, the right to sell at a set price. No shares in prediction markets function similarly to put options on the outcome.

Q

Quadratic Funding: A mechanism that matches small individual contributions with larger pool funds. Sometimes used to subsidize liquidity in public-good prediction markets.
Quote: A stated price at which a market maker is willing to buy or sell. Quotes include both bid and ask prices.
Quorum: The minimum number of participants or votes required for a market resolution to be valid. Prevents outcomes from being decided by too few participants.

R

Range Market: A market that resolves based on where a value falls within a set of ranges. For example, 'Will BTC end the year between $80K-$90K, $90K-$100K, or $100K+?'
Realized P&L: Profit or loss from positions that have been closed or resolved. Contrasted with unrealized P&L on open positions.
Redemption: Exchanging resolved shares for their payout value. After a market resolves Yes, holders of Yes shares redeem them for $1 each.
Regulatory Risk: The chance that new laws or enforcement actions restrict or shut down prediction market activity in your jurisdiction.
Resolution Criteria: The specific conditions that determine how a market resolves. Clear resolution criteria prevent disputes. For example: 'Based on the official AP election call.'
Resolution Source: The authoritative data source used to determine a market's outcome. Could be a government agency, news organization, on-chain oracle, or committee vote.
Resolution: The final determination of a market's outcome, triggering payouts to winning positions and zeroing out losing ones.
Return on Investment (ROI): The percentage gain or loss relative to the amount invested. Buying shares at $0.40 that resolve to $1.00 gives 150% ROI.
Reward: Incentives given to participants for contributing to the market. Can include trading fee rebates, governance tokens, or liquidity mining rewards.
Risk Management: Strategies for controlling potential losses. Includes position sizing, diversification, stop-losses, and avoiding correlated bets.
Risk-Reward Ratio: The potential profit compared to the potential loss on a trade. A Yes share at $0.20 offers 4:1 reward-to-risk (gain $0.80 vs lose $0.20).
Rug Pull: When platform operators or liquidity providers suddenly withdraw all funds, leaving traders with worthless positions. A risk specific to under-regulated decentralized platforms.
Recency Bias: Overweighting recent events when estimating probabilities. A common cognitive bias that causes traders to overreact to the latest news.
Regression to the Mean: The statistical tendency for extreme results to be followed by more moderate ones. A trader's hot streak doesn't mean they've found a permanent edge.
Replication: Recreating the payoff of one market using combinations of others. If you can replicate a market cheaply, any price difference is an arbitrage opportunity.
Reservation Price: The maximum price a buyer will pay or minimum a seller will accept. Based on the trader's private estimate of the true probability.
Reversal: When a price trend changes direction. In prediction markets, reversals often follow new information that contradicts previous expectations.
Risk Neutral: A pricing framework that assumes traders are indifferent between a guaranteed amount and a gamble with the same expected value.
Risk Premium: Extra return demanded by traders for bearing uncertainty. In prediction markets, prices may be slightly below true probabilities due to risk premiums.

S

Scalar Market: A market that resolves to a value within a numeric range rather than a binary Yes/No. Payout is proportional to where the actual value falls. For example, 'What will GDP growth be?'
Self-Custody: Users maintain direct control of their funds through private keys rather than trusting a centralized platform. Key principle of DeFi prediction markets.
Sentiment: The overall mood or attitude of market participants toward a particular outcome. Sentiment can push prices away from rational probabilities.
Settlement: The process of distributing payouts after a market resolves. Winning shares pay out their face value; losing shares become worthless.
Shares: The tradeable units in a prediction market. Each share represents a claim on a fixed payout if a specific outcome occurs.
Sharp Money: Bets placed by highly skilled, well-informed traders. Sharp money movements often predict where the market price will end up.
Short: Holding a position that profits when the price goes down. Selling Yes shares you don't own (or buying No shares) is shorting an outcome.
Signal: Information conveyed by market activity. A sudden price move can signal that new information has reached the market.
Slippage: The difference between the expected price and the actual execution price. Occurs when there isn't enough liquidity at your target price.
Smart Contract: Self-executing code on a blockchain that enforces agreement terms automatically. Prediction markets use smart contracts for escrow, trading, and resolution.
Solvency: A platform's ability to pay out all winning positions. Properly designed prediction markets maintain 100% solvency through collateral and complete market sets.
Speculator: A trader who takes positions primarily to profit from price movements rather than to hedge real-world risk.
Spread: The difference between the bid and ask price. A market with Yes bid at $0.58 and ask at $0.62 has a $0.04 spread.
Stablecoin: A cryptocurrency pegged to a stable asset like the US dollar. Many prediction markets use stablecoins (USDC, USDT) as their base currency.
Stake: The amount of money committed to a bet or position. Your stake is at risk until the market resolves.
Stop-Loss: An order to automatically sell your position if the price drops to a certain level. Limits potential losses but doesn't guarantee execution at your target price.
Subsidized Market: A market where a sponsor provides initial liquidity or fee rebates to encourage participation. Common for public-interest prediction markets.
Superforecaster: A term from Philip Tetlock's research for individuals who consistently outperform in probability estimation. Top prediction market traders often display superforecaster traits.
Synthetic Asset: A financial instrument that mimics the behavior of another asset through derivatives or smart contracts. Prediction market shares are synthetic representations of event probabilities.
Sandwich Attack: A MEV attack where a bot places trades before and after a victim's transaction to extract profit. A concern on public blockchain prediction markets.
Selection Bias: When the pool of market participants is systematically different from the general population. Can skew prediction market prices away from true probabilities.
Shard: A portion of a blockchain network that processes transactions in parallel. Sharding improves throughput for prediction market platforms with heavy trading.
Skin in the Game: Having personal financial exposure to the outcomes you're predicting. Prediction markets require skin in the game, which is why they outperform opinion polls.
Slashing: Penalizing validators or oracles that provide incorrect or dishonest data. Keeps resolution mechanisms honest in decentralized prediction markets.
Spot Price: The current trading price of a contract, as opposed to a historical or theoretical price.
Staking: Locking up tokens to support a network or protocol. Some prediction market platforms require staking to participate in governance or resolution.
Supply and Demand: The fundamental forces that determine prediction market prices. More buyers than sellers pushes prices up; more sellers than buyers pushes prices down.
Swap: Exchanging one type of prediction market share for another. Some AMMs allow direct swaps between outcome tokens.

T

Taker: A trader who removes liquidity by filling existing orders. Takers typically pay higher fees than makers.
Technical Analysis: Studying price charts and patterns to predict future movements. Less applicable to prediction markets than traditional finance since outcomes are event-driven.
Thin Market: A market with low trading volume and limited order depth. Prices in thin markets can be volatile and unreliable signals.
Time Decay: The erosion of a contract's value as expiration approaches with no clear resolution signal. Positions in unlikely outcomes lose value as time runs out.
Time Value: The portion of a share's price attributable to the time remaining before resolution. More time means more uncertainty, which supports higher prices for unlikely outcomes.
Token: A digital asset on a blockchain. In prediction markets, shares are often represented as tokens that can be transferred and traded.
Total Value Locked (TVL): The total amount of assets deposited in a DeFi protocol. Higher TVL in a prediction market platform indicates greater trust and usage.
Trading Fee: A charge applied to each trade by the platform. Can be a percentage of trade value, a fixed amount, or taken from the spread.
Trading Volume: The total dollar amount of shares traded in a given period. High volume indicates strong interest and usually better liquidity.
Transaction Cost: The total cost of executing a trade, including fees, spread, slippage, and gas costs. Affects the minimum edge needed to profit.
Trend: A sustained directional movement in a market's price. An uptrend in Yes shares suggests growing consensus that the event will occur.
True Probability: The actual likelihood of an event occurring, as opposed to the market's implied probability. The gap between the two represents trading opportunity.
Trustless: A system where participants don't need to trust each other or a central authority. Smart contracts enforce the rules automatically.
Tail Risk: The risk of rare, extreme events that fall far outside normal expectations. Prediction markets often underprice tail risks.
Theta: The rate at which a position's value erodes over time, all else being equal. Positions in low-probability outcomes experience significant theta as resolution approaches.
Tick Size: The minimum price increment. In most prediction markets, the tick size is $0.01, representing a 1% probability increment.
Toxic Flow: Orders from traders with superior information that cause losses for market makers. High toxic flow makes it expensive to provide liquidity.
Trailing Stop: A stop-loss that moves with the price, locking in profits as a position appreciates. Less common in prediction markets but conceptually applicable.
Transparency: The degree to which market operations, prices, and resolutions are visible to all participants. Blockchain-based markets offer maximum transparency.

U

Unrealized P&L: Paper gains or losses on positions that haven't been closed or resolved yet. Only becomes real when you sell or the market resolves.
Utility Token: A token that provides access to platform features or services, as distinct from governance tokens or pure speculative assets.
Underlying Event: The real-world occurrence that a prediction market contract references. The outcome of this event determines the contract's resolution value.
Upside: The maximum potential profit from a position. For Yes shares bought at $0.30, the upside is $0.70 per share.

V

Variance: The statistical measure of how much outcomes deviate from the expected value. High-variance strategies can be profitable but produce wild swings in short-term results.
Vigorish (Vig): The platform's built-in commission, reflected in the overround. If Yes and No prices sum to $1.02, the two-cent excess is the vig.
Volatility: How much and how quickly a market's price changes. High volatility creates trading opportunities but also increases risk.
Volume: The number of shares or dollar amount traded over a specific time period. A key indicator of market activity and liquidity.
Volume-Weighted Average Price (VWAP): The average trading price weighted by volume at each price level. Gives a better sense of where most trading actually happened.
Voter Model: A resolution mechanism where token holders or designated voters determine the outcome. Used when automated oracles can't reliably verify results.
Validator: A node that verifies and confirms blockchain transactions. Validators play a role in securing decentralized prediction market platforms.
Value Bet: A position where the market price is below your estimated true probability. The core concept behind profitable prediction market trading.

W

Wallet: A software or hardware tool for storing cryptocurrency and interacting with blockchain applications. Required to trade on decentralized prediction markets.
Wash Trading: Buying and selling the same asset to yourself to inflate volume artificially. A form of market manipulation that some platforms try to detect and penalize.
Whale: A trader with a very large bankroll who can significantly move market prices with their trades.
Wisdom of Crowds: James Surowiecki's concept that diverse, independent groups make better predictions than individuals. Prediction markets are a practical implementation of this idea.
Withdrawal: Moving funds out of a prediction market platform back to your wallet. Decentralized platforms allow instant withdrawal; centralized ones may have processing delays.
Weighted Average: An average where different data points are given different importance. Volume-weighted average price (VWAP) is a common example in trading.
Whitepaper: A technical document describing a project's architecture, economics, and goals. Most prediction market platforms publish whitepapers before launch.
Winner-Take-All: A market structure where only the correct outcome pays. Standard binary prediction markets are winner-take-all.
Wrapping: Converting a token from one standard to another (e.g., ETH to WETH) to enable compatibility with specific smart contracts or prediction market platforms.

X

X-Risk Market: A prediction market focused on existential risks like pandemics, AI alignment failures, or climate catastrophes. Often created for public awareness rather than trading profit.

Y

Yield: The return earned on deposited or staked capital. Liquidity providers in prediction market AMMs earn yield from trading fees.
Yes Shares: Shares that pay out $1 if the event DOES happen and $0 if it doesn't. The most common way to bet in favor of an outcome in prediction markets.
Yield Farming: Strategically moving capital between DeFi protocols to maximize returns. Some traders yield-farm with prediction market liquidity positions.

Z

Zero-Sum Game: A situation where one participant's gain equals another's loss. Standard prediction markets are zero-sum (minus fees): every dollar won comes from a dollar lost by someone else.
Zero-Knowledge Proof: A cryptographic method that proves something is true without revealing the underlying data. Could enable private prediction market trading on public blockchains.

Prediction Market Glossary

290+ terms covering prediction market trading, DeFi, blockchain, probability, and market mechanics.

A

Accumulator Bet: A single wager that combines multiple independent predictions. All selections must resolve correctly for the bet to pay out, offering higher potential returns but lower probability of winning.
Adverse Selection: When better-informed traders consistently take the opposite side of less-informed participants. Market makers face adverse selection when they can't distinguish skilled traders from noise traders.
Alpha: Returns earned above a benchmark or expected value. In prediction markets, alpha comes from identifying mispricings before other participants correct them.
AMM (Automated Market Maker): A smart contract that provides liquidity and sets prices algorithmically instead of relying on traditional order books. Traders buy and sell directly against the AMM's liquidity pool.
Arbitrage: Profiting from price differences for the same outcome across different markets or platforms. If one market prices an event at 60% and another at 40%, an arbitrageur can guarantee profit by buying both.
Ask Price: The lowest price at which a seller is willing to sell shares. Also called the offer price. The gap between bid and ask is the spread.

B

Backtest: Analyzing how a trading strategy would have performed using historical market data. Helps identify whether an approach has genuine predictive value or just got lucky.
Bankroll: The total amount of capital a trader has available for placing bets. Proper bankroll management is critical to surviving losing streaks and staying in the game long-term.
Bayesian Updating: A mathematical method for revising probability estimates as new evidence arrives. Prediction market prices naturally reflect Bayesian updating as traders incorporate news.
Bid Price: The highest price a buyer is willing to pay for shares. Represents current demand at that price level.
Bid-Ask Spread: The difference between the highest bid and lowest ask price. Tighter spreads indicate more liquidity. Wide spreads make trading more expensive.
Binary Market: A market with only two possible outcomes: Yes or No. The most common type of prediction market. Shares pay out $1 if the outcome occurs, $0 if it doesn't.
Binary Option: A financial contract that pays a fixed amount if a condition is met at expiration, and nothing otherwise. Prediction market shares function as binary options.
Block Trade: A large order executed outside the regular order book to avoid moving the market price. Common in institutional prediction market trading.
Blockchain: A distributed ledger that records transactions across many computers. Decentralized prediction markets use blockchains to ensure transparent and tamper-proof settlement.
Book: The collected set of all outstanding bets or orders in a market. A market maker 'runs a book' by managing both sides of available trades.
Brier Score: A scoring rule that measures prediction accuracy. Ranges from 0 (perfect) to 2 (worst possible). Calculated as the mean squared difference between predicted probabilities and actual outcomes.
Basis Point: One hundredth of a percentage point (0.01%). Used for precision when discussing small probability changes or fee rates.
Breakeven Price: The price at which a trade neither profits nor loses. Equals your entry price plus any fees. Important for deciding when to exit.
Bridge: A protocol that transfers tokens between different blockchain networks. Needed when prediction markets operate on different chains than where your assets live.

C

Calibration: How well predicted probabilities match actual frequencies. A well-calibrated forecaster's 70% predictions come true about 70% of the time.
Canton Network: A privacy-enabled blockchain network designed for institutional-grade smart contracts. Uses Daml for safe, composable applications with built-in privacy guarantees.
CBTC (Canton Bitcoin): A tokenized representation of Bitcoin on the Canton Network. Used as collateral and settlement currency in Canton-based prediction markets.
Categorical Market: A market with more than two discrete outcomes. For example, 'Which party wins the election?' with options for multiple parties.
Censorship Resistance: The property of decentralized systems that prevents any single authority from blocking or reversing transactions. Key advantage of blockchain-based prediction markets.
Central Limit Order Book (CLOB): A trading system that matches buy and sell orders by price and time priority. Traditional exchanges and some prediction markets use CLOBs.
Close Price: The final trading price of a share when a market closes for resolution. May differ from the resolution value if the outcome was uncertain until the end.
Collateral: Assets locked up to back a position. In prediction markets, collateral ensures traders can cover their obligations when markets resolve.
Complete Market: A set of prediction markets that covers every possible outcome of an event. A complete market for an election would have a contract for each candidate.
Conditional Market: A market that only activates or resolves based on the outcome of another event. For example, 'If candidate X wins, will policy Y pass?' Only relevant if X actually wins.
Consensus Mechanism: The process by which blockchain nodes agree on the current state of the ledger. Different mechanisms (proof of work, proof of stake) have different tradeoffs.
Constant Function Market Maker (CFMM): A type of AMM where a mathematical invariant governs the relationship between token reserves. Common variants include constant product (xy=k) and constant sum formulas.
Continuous Double Auction: A market structure where buyers and sellers can submit orders at any time, and trades execute whenever a bid meets or exceeds an ask.
Contract: A tradeable instrument in a prediction market representing a specific outcome. Each contract pays a fixed amount if the linked event occurs.
Counterparty: The person or entity on the other side of your trade. In peer-to-peer markets, your counterparty is another trader. In AMM markets, the smart contract acts as counterparty.
Counterparty Risk: The chance that the other side of a trade fails to fulfill their obligations. Decentralized markets reduce this risk through smart contract escrow.
Crowd Wisdom: The principle that aggregated predictions from diverse, independent thinkers often outperform individual experts. Prediction markets are a mechanism for extracting crowd wisdom.
Closing Bell: The moment a market stops accepting new trades before resolution. Some markets close at a specific time; others close when a triggering event occurs.
Cold Wallet: An offline cryptocurrency wallet disconnected from the internet. Safer for long-term storage but less convenient for active trading.
Combinatorial Market: A market that lets you bet on combinations of outcomes across multiple questions simultaneously. For example, 'Team A wins AND the total score is over 50.'
Commission: A fee charged by the platform on each trade or on winnings at resolution. Different platforms have different commission structures.
Confirmation Bias: The tendency to search for and favor information that confirms your existing beliefs. A common pitfall that causes traders to hold losing positions too long.
Conviction: How strongly a trader believes in their position. High conviction leads to larger position sizes. Overconfidence can be costly.
Correlation: The degree to which two outcomes tend to move together. Betting on correlated outcomes concentrates risk more than diversifying across uncorrelated markets.
Cost Basis: The total amount paid to acquire your position, including fees. Used to calculate profit or loss when shares are sold or resolved.
Cross-Chain: Interoperability between different blockchain networks. Cross-chain prediction markets let users trade using assets from multiple chains.
Custody: Who controls your funds. Centralized platforms hold custody (they manage your money). Decentralized platforms use self-custody (you control your keys).

D

Daml: A smart contract language built for multi-party workflows with privacy. Used on Canton Network to create prediction market contracts with fine-grained access control.
Dark Pool: A private trading venue where orders aren't visible to other participants until they execute. Reduces market impact for large trades.
Decentralized: Operating without a central authority or single point of control. Decentralized prediction markets run on blockchain networks and can't be shut down by any one party.
Decentralized Autonomous Organization (DAO): A blockchain-based organization governed by smart contracts and token holder votes rather than traditional management. Some prediction market platforms are managed by DAOs.
Decentralized Exchange (DEX): A trading platform that operates through smart contracts without intermediaries. Prediction market shares can trade on DEXs.
Delta: The rate of change in a contract's price relative to a change in the underlying probability. In binary markets, delta approximates 1 since price tracks probability directly.
Depth: The amount of liquidity available at each price level in an order book. Deep markets can absorb large trades without significant price movement.
Deterministic Resolution: A market outcome that can be verified objectively without human judgment. 'Did BTC close above $100K on Dec 31?' is deterministic.
DeFi (Decentralized Finance): Financial services built on blockchain without traditional intermediaries. Prediction markets are a major DeFi category.
Discount: When shares trade below their expected value. A market trading at 30 cents for an outcome the buyer believes has a 50% chance represents a discount.
Dispersion: How spread out prices or probabilities are across related markets. High dispersion between platforms suggests inefficiency or arbitrage opportunity.
Dutch Auction: An auction where the price starts high and decreases until a buyer accepts. Sometimes used for initial share distribution in prediction markets.
Dead Market: A market with no recent trading activity. Prices in dead markets may not reflect current information and should be treated skeptically.
Decentralized Oracle Network: A system of independent nodes that collectively provide verified real-world data to smart contracts. Chainlink and UMA are examples used by prediction markets.
Dispute Resolution: The process for handling disagreements about how a market should resolve. Can involve appeals, voting, or escalation to a governance body.
Divergence: When a prediction market price moves away from the consensus of other information sources. Can signal either market inefficiency or that the market has unique information.
Diversification: Spreading bets across multiple uncorrelated markets to reduce overall portfolio risk. A core risk management principle.
Double Spend: Attempting to use the same cryptocurrency for two different transactions. Blockchains prevent double spending through consensus mechanisms.
Drawdown: The decline from a peak portfolio value to a trough. Maximum drawdown measures the worst loss a trader has experienced.
Dutch Book: A set of bets that guarantees a loss regardless of the outcome. If a market's implied probabilities don't sum to 100%, a Dutch book opportunity may exist.

E

Edge: A trader's informational or analytical advantage over the market price. If you believe an event has a 70% chance but the market says 55%, your edge is 15 percentage points.
Efficient Market Hypothesis (EMH): The theory that market prices reflect all available information. Prediction markets are often studied as tests of EMH since they aggregate diverse information sources.
Epoch: A defined time period in a protocol's operation. Some prediction market platforms use epochs for batching trades, distributing rewards, or updating parameters.
Escrow: Funds held by a neutral third party (or smart contract) until trade conditions are met. Prediction markets use escrow to guarantee payouts on resolution.
Event Contract: A financial instrument whose value depends on the outcome of a specific real-world event. Prediction market shares are event contracts.
Exchange: A platform that facilitates buying and selling of prediction market contracts. Can be centralized (like Kalshi) or decentralized (like Polymarket).
Execution Price: The actual price at which a trade is filled. May differ from the quoted price due to slippage, especially in thin markets.
Expected Value (EV): The probability-weighted average of all possible outcomes. A bet with positive EV (+EV) is profitable in the long run. Calculated as (probability x payout) minus cost.
Expiration: The date and time when a market stops trading and moves to resolution. After expiration, shares are worth either their payout value or zero.
Early Resolution: When a market resolves before its scheduled expiration because the outcome becomes known early.
Endowment Effect: The tendency to overvalue shares you already own compared to identical shares you don't have. Can prevent rational position management.
Entry Point: The price at which you open a position. A good entry point means buying when the price is below your estimated fair value.
Exit Strategy: Your plan for when and how to close a position. Can be based on a target price, time limit, or change in your probability estimate.
Exotic Market: A prediction market on an unusual or niche topic. Can have wider spreads and less reliable prices due to lower participation.

F

Fair Value: The theoretical 'correct' price of a contract based on the true probability of the outcome. Markets are considered efficient when trading prices are close to fair value.
Fee: A charge applied to trades by the platform. Can be a flat rate per trade, a percentage of the trade value, or built into the spread.
Fill: When an order gets executed. A 'partial fill' means only some of your order was matched. A 'full fill' means the entire order traded.
Flash Crash: A sudden, sharp drop in prices that recovers quickly. Can happen in prediction markets when large sell orders hit thin order books.
Floor Price: The minimum price a contract can trade at. In binary markets, the theoretical floor is $0 (outcome won't happen) but practical floors may be slightly higher.
Forecasting: The practice of estimating probabilities for future events. Prediction markets are a market-based approach to forecasting.
Fork: A change in a blockchain's protocol rules. Can affect prediction markets built on that chain by creating parallel versions or requiring migration.
Front-Running: Trading ahead of a known incoming order to profit from the expected price impact. MEV bots can front-run prediction market trades on public blockchains.
Funding Rate: Periodic payments between long and short position holders to keep perpetual contract prices aligned with the spot market. Some prediction market designs use similar mechanisms.
Futures Contract: An agreement to buy or sell an asset at a set price on a future date. Prediction market contracts share similarities with futures but resolve to binary outcomes.
Fade: To bet against the prevailing market consensus. Fading popular sentiment can be profitable when the crowd overreacts.
Fat Finger Error: An accidentally large or mispriced order caused by a typing mistake. Can create brief anomalous prices that other traders exploit.
Fibonacci Retracement: A technical analysis tool based on key ratios. Rarely applicable to prediction markets since prices are bound between $0 and $1.
First Mover: The first trader to act on new information. First movers capture the most profit but also face the highest uncertainty.
Fixed Odds: A betting system where the payout is determined at the time of the bet, regardless of future price movements. Limit orders in prediction markets create fixed-odds positions.
Flash Loan: An uncollateralized DeFi loan that must be repaid within a single transaction. Could theoretically be used to manipulate prediction market prices temporarily.
Fundamental Analysis: Evaluating the true probability of an outcome based on underlying factors, data, and domain knowledge rather than price patterns.

G

Gas Fee: The cost of executing a transaction on a blockchain network. Traders on decentralized prediction markets pay gas fees for every trade, claim, and deposit.
Governance: The system by which decisions about protocol rules, fees, and upgrades are made. Decentralized prediction markets often use token-based governance.
Governance Token: A cryptocurrency that grants holders voting rights over protocol decisions. Some prediction market platforms issue governance tokens to active participants.
Gambler's Fallacy: The mistaken belief that past random events affect future probabilities. A coin landing heads 10 times doesn't make tails more likely next flip.
Good 'Til Cancelled (GTC): An order type that remains active until explicitly cancelled or the market expires. Default for most prediction market limit orders.

H

Hedge: Using a prediction market position to offset risk from another investment or real-world exposure. A farmer might buy shares in 'Will there be a drought?' to hedge crop risk.
Haircut: A reduction in the recognized value of collateral. A platform might accept crypto collateral but apply a 10% haircut to account for volatility.
Hot Wallet: An internet-connected cryptocurrency wallet used for active trading. More convenient but less secure than cold storage.

I

Iceberg Order: A large order split into smaller visible portions. Only a fraction of the total order is shown in the book, hiding the trader's full intent.
Illiquid: A market with low trading volume and wide spreads. Illiquid markets are harder to enter and exit without affecting the price.
Implied Probability: The probability of an outcome as suggested by the market price. A share trading at $0.65 implies a 65% chance of that outcome occurring.
Impermanent Loss: The temporary loss liquidity providers face when the price ratio of pooled assets changes. AMM-based prediction market LPs can experience this.
Index Market: A market that tracks a composite value rather than a single event. For example, a market on the total number of seats a party wins.
Information Aggregation: The process by which prediction market prices combine private knowledge from many participants into a single probability estimate.
Information Asymmetry: When some market participants have access to information that others don't. Skilled traders exploit information asymmetry to profit.
Initial Liquidity: The starting pool of funds that enables trading in a new market. AMMs require initial liquidity before anyone can trade.
In-the-Money: A position that would be profitable if the market resolved right now. Yes shares are in-the-money when the price is above your purchase price.
Incentive Compatibility: A market design property where participants are rewarded for reporting their true beliefs. Well-designed prediction markets are incentive compatible.
Information Market: Another name for prediction markets, emphasizing their role in aggregating information from diverse sources into a single price signal.
Insider Trading: Trading based on material non-public information. Controversial in prediction markets because allowing insider trading could actually improve price accuracy.

J

Jump Risk: The risk of sudden, large price movements when unexpected news breaks. Prediction markets are especially vulnerable around scheduled announcements.

K

Kelly Criterion: A formula for calculating the optimal bet size based on your edge and bankroll. Bet fraction = (bp - q) / b, where b is odds, p is win probability, q is loss probability.
Know Your Customer (KYC): Identity verification requirements imposed by regulators. Centralized prediction markets like Kalshi require KYC. Decentralized platforms often don't.

L

Last Price: The price at which the most recent trade was executed. Can differ from the current bid or ask, especially in slow-moving markets.
Latency: The time delay between submitting an order and it being executed. Lower latency gives traders an advantage in fast-moving markets.
Layer 2 (L2): A secondary blockchain built on top of a Layer 1 chain to improve speed and reduce costs. Some prediction markets deploy on L2s for cheaper transactions.
Leverage: Using borrowed funds or structured products to amplify potential returns (and losses). Some prediction market designs allow leveraged positions.
Limit Order: An order to buy or sell at a specific price or better. The trade only executes if the market reaches your price. Gives you price control but no guarantee of execution.
Liquidity: How easily you can buy or sell shares without moving the price. High liquidity means tight spreads and fast execution. Low liquidity means you'll pay more to trade.
Liquidity Mining: Earning token rewards for providing liquidity to a protocol. Some prediction market platforms incentivize liquidity providers this way.
Liquidity Pool: A smart contract holding paired assets that enables decentralized trading. AMM-based prediction markets use liquidity pools instead of order books.
Liquidity Provider (LP): A participant who deposits funds into a liquidity pool or places orders on both sides of the book. LPs earn fees but take on risk from adverse selection.
LMSR (Logarithmic Market Scoring Rule): A popular AMM algorithm for prediction markets created by Robin Hanson. Prices adjust logarithmically with each trade, ensuring infinite liquidity at increasingly expensive prices.
Long: Holding a position that profits when the price goes up. Buying Yes shares is going long on that outcome happening.
Loss Aversion: The psychological tendency to feel losses more strongly than equivalent gains. Can cause traders to hold losing positions too long or cut winners too short.
Locked Liquidity: Funds committed to a market that can't be withdrawn until resolution. Represents an opportunity cost for the capital provider.

M

Maker: A trader who adds liquidity to the order book by placing limit orders. Makers typically pay lower fees because they improve market quality.
Manipulation: Intentionally moving market prices to create a false signal. Prediction markets are generally resistant to sustained manipulation because it creates profit opportunities for others.
Margin: The collateral required to open or maintain a position. In some prediction market structures, traders must post margin against potential losses.
Margin Call: A demand to deposit additional funds when a position's losses approach the posted margin. Forces traders to either add capital or close positions.
Market Capitalization: The total value of all outstanding shares in a prediction market. Calculated as the number of shares times the current price.
Market Depth: The volume of orders at various price levels in the order book. Deep markets can handle large trades without significant price impact.
Market Maker: A participant who continuously provides buy and sell quotes. Market makers profit from the spread while taking on risk from price movements.
Market Order: An order to buy or sell immediately at the best available price. Guarantees execution but not price. Can experience significant slippage in thin markets.
Market Resolution: The process of determining the outcome and settling positions after an event occurs. Resolution can be automatic (oracle-based) or manual (human committee).
Maximal Extractable Value (MEV): Profit that miners or validators can extract by reordering, including, or excluding transactions. Affects prediction markets on public blockchains through front-running and sandwich attacks.
Mean Reversion: The tendency for prices to move back toward their long-term average. In prediction markets, prices that overshoot on news often partially revert as the initial reaction fades.
Minting: Creating new prediction market shares. In binary markets, you can mint a complete set (one Yes + one No) for $1, then sell the side you don't want.
Moral Hazard: When a market participant can influence the outcome they're betting on. Some topics are excluded from prediction markets because of moral hazard concerns.
Multi-Outcome Market: A market with three or more possible results. All outcome shares should sum to $1 (or 100%). Also called a categorical or multiple-choice market.
Matching Engine: The system that pairs buy and sell orders. Determines execution order based on price priority and time priority.
Mid Price: The midpoint between the best bid and best ask. Often used as a reference price when neither the bid nor ask fairly represents value.
Momentum: The tendency for prices that have been moving in a direction to continue moving that way. In prediction markets, momentum often follows new information releases.
Money Line: An American odds format expressing the payout on a $100 bet. +200 means you'd win $200 on a $100 bet. Common in sports betting, less so in prediction markets.

N

Negative Expected Value (-EV): A bet where the expected return is less than the cost. Over time, making -EV bets guarantees losses. The house edge in casinos is an example.
No Shares: Shares that pay out $1 if the event does NOT happen and $0 if it does. The mirror image of Yes shares. If Yes trades at $0.60, No should trade at $0.40.
Noise Trader: A participant who trades on incomplete information, emotion, or random signals rather than fundamental analysis. Noise traders create opportunities for informed traders but also add liquidity.
Notional Value: The total value of a position based on the face value of the contracts held, regardless of how much was actually paid.
Net Position: Your overall exposure after netting out offsetting positions. If you hold 100 Yes and 40 No shares, your net position is 60 long Yes.

O

Odds: A way of expressing probability. Can be stated as decimal (2.50), fractional (3/2), or American (+150). Prediction market prices convert directly to implied probability.
On-Chain: Activity recorded directly on a blockchain. On-chain prediction markets have fully transparent trade histories and settlement.
Open Interest: The total number of outstanding contracts that haven't been settled. High open interest indicates strong trader engagement in a market.
Oracle: A system that feeds real-world data to smart contracts. Prediction markets rely on oracles to determine outcomes and trigger settlement.
Oracle Attack: Manipulating the data feed that an oracle reports, causing markets to resolve incorrectly. A major security concern for decentralized prediction markets.
Order Book: A list of all pending buy and sell orders arranged by price. Shows the depth of demand and supply at each price level.
Outcome: One of the possible results an event can produce. A binary market has two outcomes (Yes/No). A categorical market can have many.
Out-of-the-Money: A position that would be unprofitable if the market resolved right now. Holding Yes shares bought at 70 cents when the market price drops to 40 cents.
Overround: When the implied probabilities of all outcomes sum to more than 100%. The excess represents the market maker's built-in profit margin. Also called vigorish or vig.
Orderflow: The stream of buy and sell orders entering a market. Analyzing orderflow helps traders understand what other participants are doing.
Outcome Token: A blockchain token representing a claim on a specific outcome in a prediction market. Can be traded, transferred, or redeemed.
Overbought: When a market has risen quickly and the price may be higher than the true probability justifies. Often a sign that a correction is coming.
Oversold: When a market has fallen quickly and the price may be lower than the true probability justifies. Potential buying opportunity.

P

Paper Trading: Simulated trading with fake money to test strategies without financial risk. Useful for learning prediction market mechanics before committing real capital.
Pari-Mutuel: A betting system where all wagers go into a pool, and payouts are calculated based on the pool's total divided among winners. Different from fixed-odds markets.
Payout: The amount received when a market resolves in your favor. In standard binary markets, winning shares pay $1 each.
Peer-to-Peer (P2P): Direct trading between individuals without an intermediary. Some prediction market designs match bets directly between opposing traders.
Perpetual Market: A prediction market without a fixed expiration date. Resolves based on a trigger condition rather than a calendar date.
Permissioned Blockchain: A blockchain where participation is restricted to approved entities. Canton Network is permissioned, offering privacy guarantees not available on public chains.
Platform Risk: The chance that the prediction market platform itself fails, gets hacked, or shuts down before markets resolve.
Position: The shares you currently hold in a market. A 'long Yes' position means you own Yes shares. A 'flat' position means you hold no shares.
Position Sizing: Deciding how much of your bankroll to allocate to a single bet. The Kelly Criterion is one approach to optimal position sizing.
Positive Expected Value (+EV): A bet where the expected return exceeds the cost. Consistently making +EV bets is the foundation of profitable prediction market trading.
Premium: When shares trade above their expected value. The market may be pricing in information, sentiment, or simply have low liquidity pushing prices up.
Price Discovery: The process by which trading activity reveals the market's consensus probability for an outcome. One of the primary functions of prediction markets.
Price Impact: How much a trade moves the market price. Larger orders have more impact, especially in low-liquidity markets.
Privacy: The ability to keep trading activity and positions confidential. Canton Network provides sub-transaction privacy not available on most public blockchains.
Probability: A number between 0 and 1 (or 0% and 100%) representing the likelihood of an event occurring. Prediction market prices are interpreted as probabilities.
Profit and Loss (P&L): The net gain or loss from your trading positions. Calculated as the value of shares at resolution (or current price) minus the cost of acquiring them.
Protocol: The set of rules governing how a decentralized prediction market operates, including trading mechanics, fee structures, and resolution procedures.
Pseudonymous: Operating under a wallet address rather than real identity. Most decentralized prediction markets allow pseudonymous participation.
Parimutuel Pool: A betting pool where all wagers are collected and divided among winners proportionally. The final odds aren't known until betting closes.
Prediction Tournament: An organized forecasting competition where participants make predictions on a set of questions. Results are scored for accuracy over time.
Price Ceiling: The maximum price a contract can reach, which is $1 in standard binary prediction markets (representing 100% probability).
Price Floor: The minimum price a contract can reach, approaching $0 in standard binary prediction markets (representing 0% probability).
Provably Fair: A system where the fairness of outcomes can be mathematically verified. Blockchain-based prediction markets can be provably fair through transparent smart contracts.
Put Option: In traditional finance, the right to sell at a set price. No shares in prediction markets function similarly to put options on the outcome.

Q

Quadratic Funding: A mechanism that matches small individual contributions with larger pool funds. Sometimes used to subsidize liquidity in public-good prediction markets.
Quote: A stated price at which a market maker is willing to buy or sell. Quotes include both bid and ask prices.
Quorum: The minimum number of participants or votes required for a market resolution to be valid. Prevents outcomes from being decided by too few participants.

R

Range Market: A market that resolves based on where a value falls within a set of ranges. For example, 'Will BTC end the year between $80K-$90K, $90K-$100K, or $100K+?'
Realized P&L: Profit or loss from positions that have been closed or resolved. Contrasted with unrealized P&L on open positions.
Redemption: Exchanging resolved shares for their payout value. After a market resolves Yes, holders of Yes shares redeem them for $1 each.
Regulatory Risk: The chance that new laws or enforcement actions restrict or shut down prediction market activity in your jurisdiction.
Resolution Criteria: The specific conditions that determine how a market resolves. Clear resolution criteria prevent disputes. For example: 'Based on the official AP election call.'
Resolution Source: The authoritative data source used to determine a market's outcome. Could be a government agency, news organization, on-chain oracle, or committee vote.
Resolution: The final determination of a market's outcome, triggering payouts to winning positions and zeroing out losing ones.
Return on Investment (ROI): The percentage gain or loss relative to the amount invested. Buying shares at $0.40 that resolve to $1.00 gives 150% ROI.
Reward: Incentives given to participants for contributing to the market. Can include trading fee rebates, governance tokens, or liquidity mining rewards.
Risk Management: Strategies for controlling potential losses. Includes position sizing, diversification, stop-losses, and avoiding correlated bets.
Risk-Reward Ratio: The potential profit compared to the potential loss on a trade. A Yes share at $0.20 offers 4:1 reward-to-risk (gain $0.80 vs lose $0.20).
Rug Pull: When platform operators or liquidity providers suddenly withdraw all funds, leaving traders with worthless positions. A risk specific to under-regulated decentralized platforms.
Recency Bias: Overweighting recent events when estimating probabilities. A common cognitive bias that causes traders to overreact to the latest news.
Regression to the Mean: The statistical tendency for extreme results to be followed by more moderate ones. A trader's hot streak doesn't mean they've found a permanent edge.
Replication: Recreating the payoff of one market using combinations of others. If you can replicate a market cheaply, any price difference is an arbitrage opportunity.
Reservation Price: The maximum price a buyer will pay or minimum a seller will accept. Based on the trader's private estimate of the true probability.
Reversal: When a price trend changes direction. In prediction markets, reversals often follow new information that contradicts previous expectations.
Risk Neutral: A pricing framework that assumes traders are indifferent between a guaranteed amount and a gamble with the same expected value.
Risk Premium: Extra return demanded by traders for bearing uncertainty. In prediction markets, prices may be slightly below true probabilities due to risk premiums.

S

Scalar Market: A market that resolves to a value within a numeric range rather than a binary Yes/No. Payout is proportional to where the actual value falls. For example, 'What will GDP growth be?'
Self-Custody: Users maintain direct control of their funds through private keys rather than trusting a centralized platform. Key principle of DeFi prediction markets.
Sentiment: The overall mood or attitude of market participants toward a particular outcome. Sentiment can push prices away from rational probabilities.
Settlement: The process of distributing payouts after a market resolves. Winning shares pay out their face value; losing shares become worthless.
Shares: The tradeable units in a prediction market. Each share represents a claim on a fixed payout if a specific outcome occurs.
Sharp Money: Bets placed by highly skilled, well-informed traders. Sharp money movements often predict where the market price will end up.
Short: Holding a position that profits when the price goes down. Selling Yes shares you don't own (or buying No shares) is shorting an outcome.
Signal: Information conveyed by market activity. A sudden price move can signal that new information has reached the market.
Slippage: The difference between the expected price and the actual execution price. Occurs when there isn't enough liquidity at your target price.
Smart Contract: Self-executing code on a blockchain that enforces agreement terms automatically. Prediction markets use smart contracts for escrow, trading, and resolution.
Solvency: A platform's ability to pay out all winning positions. Properly designed prediction markets maintain 100% solvency through collateral and complete market sets.
Speculator: A trader who takes positions primarily to profit from price movements rather than to hedge real-world risk.
Spread: The difference between the bid and ask price. A market with Yes bid at $0.58 and ask at $0.62 has a $0.04 spread.
Stablecoin: A cryptocurrency pegged to a stable asset like the US dollar. Many prediction markets use stablecoins (USDC, USDT) as their base currency.
Stake: The amount of money committed to a bet or position. Your stake is at risk until the market resolves.
Stop-Loss: An order to automatically sell your position if the price drops to a certain level. Limits potential losses but doesn't guarantee execution at your target price.
Subsidized Market: A market where a sponsor provides initial liquidity or fee rebates to encourage participation. Common for public-interest prediction markets.
Superforecaster: A term from Philip Tetlock's research for individuals who consistently outperform in probability estimation. Top prediction market traders often display superforecaster traits.
Synthetic Asset: A financial instrument that mimics the behavior of another asset through derivatives or smart contracts. Prediction market shares are synthetic representations of event probabilities.
Sandwich Attack: A MEV attack where a bot places trades before and after a victim's transaction to extract profit. A concern on public blockchain prediction markets.
Selection Bias: When the pool of market participants is systematically different from the general population. Can skew prediction market prices away from true probabilities.
Shard: A portion of a blockchain network that processes transactions in parallel. Sharding improves throughput for prediction market platforms with heavy trading.
Skin in the Game: Having personal financial exposure to the outcomes you're predicting. Prediction markets require skin in the game, which is why they outperform opinion polls.
Slashing: Penalizing validators or oracles that provide incorrect or dishonest data. Keeps resolution mechanisms honest in decentralized prediction markets.
Spot Price: The current trading price of a contract, as opposed to a historical or theoretical price.
Staking: Locking up tokens to support a network or protocol. Some prediction market platforms require staking to participate in governance or resolution.
Supply and Demand: The fundamental forces that determine prediction market prices. More buyers than sellers pushes prices up; more sellers than buyers pushes prices down.
Swap: Exchanging one type of prediction market share for another. Some AMMs allow direct swaps between outcome tokens.

T

Taker: A trader who removes liquidity by filling existing orders. Takers typically pay higher fees than makers.
Technical Analysis: Studying price charts and patterns to predict future movements. Less applicable to prediction markets than traditional finance since outcomes are event-driven.
Thin Market: A market with low trading volume and limited order depth. Prices in thin markets can be volatile and unreliable signals.
Time Decay: The erosion of a contract's value as expiration approaches with no clear resolution signal. Positions in unlikely outcomes lose value as time runs out.
Time Value: The portion of a share's price attributable to the time remaining before resolution. More time means more uncertainty, which supports higher prices for unlikely outcomes.
Token: A digital asset on a blockchain. In prediction markets, shares are often represented as tokens that can be transferred and traded.
Total Value Locked (TVL): The total amount of assets deposited in a DeFi protocol. Higher TVL in a prediction market platform indicates greater trust and usage.
Trading Fee: A charge applied to each trade by the platform. Can be a percentage of trade value, a fixed amount, or taken from the spread.
Trading Volume: The total dollar amount of shares traded in a given period. High volume indicates strong interest and usually better liquidity.
Transaction Cost: The total cost of executing a trade, including fees, spread, slippage, and gas costs. Affects the minimum edge needed to profit.
Trend: A sustained directional movement in a market's price. An uptrend in Yes shares suggests growing consensus that the event will occur.
True Probability: The actual likelihood of an event occurring, as opposed to the market's implied probability. The gap between the two represents trading opportunity.
Trustless: A system where participants don't need to trust each other or a central authority. Smart contracts enforce the rules automatically.
Tail Risk: The risk of rare, extreme events that fall far outside normal expectations. Prediction markets often underprice tail risks.
Theta: The rate at which a position's value erodes over time, all else being equal. Positions in low-probability outcomes experience significant theta as resolution approaches.
Tick Size: The minimum price increment. In most prediction markets, the tick size is $0.01, representing a 1% probability increment.
Toxic Flow: Orders from traders with superior information that cause losses for market makers. High toxic flow makes it expensive to provide liquidity.
Trailing Stop: A stop-loss that moves with the price, locking in profits as a position appreciates. Less common in prediction markets but conceptually applicable.
Transparency: The degree to which market operations, prices, and resolutions are visible to all participants. Blockchain-based markets offer maximum transparency.

U

Unrealized P&L: Paper gains or losses on positions that haven't been closed or resolved yet. Only becomes real when you sell or the market resolves.
Utility Token: A token that provides access to platform features or services, as distinct from governance tokens or pure speculative assets.
Underlying Event: The real-world occurrence that a prediction market contract references. The outcome of this event determines the contract's resolution value.
Upside: The maximum potential profit from a position. For Yes shares bought at $0.30, the upside is $0.70 per share.

V

Variance: The statistical measure of how much outcomes deviate from the expected value. High-variance strategies can be profitable but produce wild swings in short-term results.
Vigorish (Vig): The platform's built-in commission, reflected in the overround. If Yes and No prices sum to $1.02, the two-cent excess is the vig.
Volatility: How much and how quickly a market's price changes. High volatility creates trading opportunities but also increases risk.
Volume: The number of shares or dollar amount traded over a specific time period. A key indicator of market activity and liquidity.
Volume-Weighted Average Price (VWAP): The average trading price weighted by volume at each price level. Gives a better sense of where most trading actually happened.
Voter Model: A resolution mechanism where token holders or designated voters determine the outcome. Used when automated oracles can't reliably verify results.
Validator: A node that verifies and confirms blockchain transactions. Validators play a role in securing decentralized prediction market platforms.
Value Bet: A position where the market price is below your estimated true probability. The core concept behind profitable prediction market trading.

W

Wallet: A software or hardware tool for storing cryptocurrency and interacting with blockchain applications. Required to trade on decentralized prediction markets.
Wash Trading: Buying and selling the same asset to yourself to inflate volume artificially. A form of market manipulation that some platforms try to detect and penalize.
Whale: A trader with a very large bankroll who can significantly move market prices with their trades.
Wisdom of Crowds: James Surowiecki's concept that diverse, independent groups make better predictions than individuals. Prediction markets are a practical implementation of this idea.
Withdrawal: Moving funds out of a prediction market platform back to your wallet. Decentralized platforms allow instant withdrawal; centralized ones may have processing delays.
Weighted Average: An average where different data points are given different importance. Volume-weighted average price (VWAP) is a common example in trading.
Whitepaper: A technical document describing a project's architecture, economics, and goals. Most prediction market platforms publish whitepapers before launch.
Winner-Take-All: A market structure where only the correct outcome pays. Standard binary prediction markets are winner-take-all.
Wrapping: Converting a token from one standard to another (e.g., ETH to WETH) to enable compatibility with specific smart contracts or prediction market platforms.

X

X-Risk Market: A prediction market focused on existential risks like pandemics, AI alignment failures, or climate catastrophes. Often created for public awareness rather than trading profit.

Y

Yield: The return earned on deposited or staked capital. Liquidity providers in prediction market AMMs earn yield from trading fees.
Yes Shares: Shares that pay out $1 if the event DOES happen and $0 if it doesn't. The most common way to bet in favor of an outcome in prediction markets.
Yield Farming: Strategically moving capital between DeFi protocols to maximize returns. Some traders yield-farm with prediction market liquidity positions.

Z

Zero-Sum Game: A situation where one participant's gain equals another's loss. Standard prediction markets are zero-sum (minus fees): every dollar won comes from a dollar lost by someone else.
Zero-Knowledge Proof: A cryptographic method that proves something is true without revealing the underlying data. Could enable private prediction market trading on public blockchains.