Prediction Market Glossary: Essential Terms Every Trader Must Know

Understanding prediction market terminology is essential for successful trading. This glossary covers every important term you will encounter on platforms like Polymarket, Kalshi, and PredictIt.

Core Concepts

Prediction Market

A market where participants trade contracts based on the outcome of future events. Prices reflect the collective probability estimate of the crowd.

Event Contract

A financial contract that pays out based on whether a specific event occurs. Typically pays $1 if the event happens and $0 if it doesn't.

Implied Probability

The probability of an outcome as suggested by the market price. A contract priced at $0.70 implies a 70% probability of occurring.

Edge

The difference between your estimated probability and the market price. If you believe something has an 80% chance but it's priced at 60%, you have a +20% edge.

Expected Value (EV)

The average outcome if you made the same bet many times. Calculated as (probability × payout) - (probability of loss × stake). Positive EV bets are profitable long-term.

Position

The contracts you currently hold in a market. Your position determines your exposure to the outcome.

Trading Positions

Long Position

Buying contracts because you believe the event is more likely than the market suggests. You profit if the probability rises or the event occurs.

Short Position

Selling contracts because you believe the event is less likely than the market suggests. You profit if the probability falls or the event doesn't occur.

Market Mechanics

Liquidity

How easily you can buy or sell contracts without significantly moving the price. High liquidity means tight spreads and easier trading.

Spread

The difference between the best buy price and best sell price. Narrower spreads indicate better liquidity and lower trading costs.

Slippage

The difference between the expected price and the actual execution price. More common in low-liquidity markets when trading large sizes.

Market Maker

A participant who provides liquidity by offering to buy and sell contracts. They profit from the spread between their buy and sell prices.

Order Book

A list of all open buy and sell orders in a market, showing the depth of liquidity at each price level.

Resolution

The process of determining the outcome of a market. After resolution, winning contracts pay out and losing contracts expire worthless.

Risk Management

Resolution Source

The authoritative source used to determine the outcome. Could be a news organization, official body, or defined criteria.

Kelly Criterion

A formula for optimal bet sizing based on your edge and bankroll. Helps maximize long-term growth while managing risk.

Bankroll

The total amount of money you have available for trading. Proper bankroll management is essential for long-term success.

Arbitrage

Exploiting price differences across markets to lock in risk-free profit. For example, if the same event is priced differently on two platforms.

Calibration

How well your probability estimates match actual outcomes over time. A well-calibrated forecaster's 70% predictions happen about 70% of the time.

Technical Terms

USDC

A stablecoin pegged to the US dollar, used as the trading currency on Polymarket. 1 USDC = $1 USD.

Polygon

The blockchain network Polymarket operates on. A layer-2 solution for Ethereum with lower fees and faster transactions.

Gas Fees

Transaction fees paid to process operations on the blockchain. On Polygon, these are typically very low (under $0.10).

Wallet

A digital account that stores your cryptocurrency and prediction market positions. Can be custodial (platform-managed) or self-custodial.

KYC

Know Your Customer verification. Identity verification required for higher trading limits and certain withdrawal methods.

Quick Reference

• Edge = Your probability - Market price
• Implied probability = Contract price × 100
• EV = (Win% × Payout) - (Loss% × Stake)
• Kelly bet = Edge ÷ Odds
• Always verify resolution sources before trading

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Start trading\ Polymarket for Beginners Understand the numbers\ Reading Polymarket Odds Size your bets\ Position Sizing Guide

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