Prediction Market Glossary: Terms You Need To Know

An event is the underlying reality that will eventually be either true or false. Everything else - markets, contracts, prices - is just different ways of trading on that event.

Examples: “The Fed raises rates at the next meeting,” “Bitcoin closes above $60,000 on December 31,” “Team USA wins at least 31 medals.”

An event is “Will the Fed raise rates?”
A market is the tradable version of that, like: “Will the Fed raise the federal funds rate at the next meeting? YES or NO.”

Same real-world idea, but the market is the structured question you can actually buy and sell contracts on.

Platforms write market questions very carefully, because it decides how the market will be judged when it’s time to pay out.

If you’re ever unsure what you’re really betting on, re-read the market question slowly. Most misunderstandings come from people skimming this line.

• In a YES / NO market, the outcomes are YES and NO.
• In a multiple-choice market, outcomes might be “Candidate A,” “Candidate B,” “Field,” etc.

You don’t trade “the event.” You trade contracts tied to specific outcomes.

Most platforms treat “contract” and “share” as the same thing:

• 1 YES contract usually pays $1 if YES happens, $0 if it doesn’t.
• 1 NO contract usually pays $1 if NO happens, $0 if it does.

If you own 100 YES shares, you’re lined up to get $100 if YES wins and $0 if it doesn’t (ignoring fees).

Market: “Will it rain in NYC tomorrow?”

• Buy the YES side if you think it will rain.
• If the market resolves YES, each YES contract pays the full amount (usually $1).

YES is the “it happens” half of the bet.

Same market: “Will it rain in NYC tomorrow?”

• Buy the NO side if you think it won’t rain.
• If the market resolves NO, your NO contracts pay out instead.

NO is the “it doesn’t happen” half of the bet.

On most platforms, par value is $1 per contract.

• If your contract wins, you receive $1.
• If it loses, you receive $0.

All the trading prices you see (like $0.23, $0.67, etc.) are just the current cost of a contract that might pay $1.

Your position describes what you’re exposed to:

• If you own 40 YES contracts and 10 NO contracts, your net position is effectively “long 30 YES.”
• If you own only NO contracts, your position is purely on the NO side.

You can think of it as your current “bet size and direction” in that market.

If a YES contract is priced at $0.63:

• You pay $0.63 to buy it.
• You’ll receive $1 if YES wins.
• You’ll receive $0 if YES loses.

Higher prices mean the market thinks that outcome is more likely. Lower prices mean less likely.

Prediction markets usually treat the contract price as a rough probability:

• A price of $0.20 suggests around a 20% chance.
• A price of $0.75 suggests around a 75% chance.

It’s not a guarantee, but it’s a useful mental shortcut: read the cents as a percentage. You can then compare the market’s implied probability to your own estimate to see if there’s a potential edge.

If an outcome really has a 40% chance of happening, then the fair value price for a YES contract is $0.40.

Markets rarely sit perfectly at fair value. They wobble around it as people trade, get emotional, or get new information.

Expected value answers the question: “If I made this exact same bet thousands of times, would I come out ahead or behind on average?”

You don’t need the full formula to survive. Just remember:

• Positive EV (“+EV”) = good long-term bet (even though any single bet can lose).
• Negative EV (“-EV”) = bad long-term bet (even if you sometimes get lucky).

Prediction markets are full of people arguing about what’s +EV. That’s the game.

You have edge when your view and the market’s view disagree in your favor:

• Market prices an outcome like it’s 40% likely (contract at $0.40).
• You have good reasons to believe it’s actually 60% likely.

That 20-point gap between your number and the market’s is where your edge lives – if you’re right.

If you add up the prices of all outcomes in a market, you might get something like 104% instead of 100%. That extra 4% is the overround.

It’s basically the “friction” baked into the market, similar to a house edge.

You don’t need to calculate it constantly, but it explains why you can’t just buy every outcome and print free money.

When you click “Buy 10 YES at $0.45,” you’re sending an order to the market.

The system then tries to match that order against someone who wants to take the other side - selling to you at that price.

The order book shows:

• On one side: people trying to buy + their bid prices and sizes.
• On the other: people trying to sell + their ask prices and sizes.

It’s like a live scoreboard of who wants what and how much they want to pay for it.

Market orders prioritize speed over price. You use them when getting in or out quickly matters more than squeezing every cent.

If you place a market buy order:

• You’ll instantly buy from the cheapest sellers in the book.
• You might pay slightly more than you expected if the market is thin.

Example:

• You place a limit order to buy YES at $0.50.
• The system will only fill you at $0.50 or cheaper. It will never pay more than $0.50 for you.

If no one is willing to sell that low, your order will just sit there waiting and remain unfilled. Limit orders prioritize price over speed.

If you tried to buy 20 contracts and you actually get 20, you’re fully filled.

If you only get 5 because there weren’t more contracts available at your price, you’re partially filled. Either way, the fill is the part that actually became a trade.

Example:

• You try to buy 50 contracts at $0.60.
• Only 20 contracts are available at $0.60 right now.
• You get 20 contracts filled immediately.
• The remaining 30 stay as an open order at $0.60, waiting for more sellers.

Partial fills are normal in thinner markets.

If you change your mind or the market moves away from your target, you can cancel your open orders.

Important: cancelling only affects unfilled orders. Trades that already filled are part of your position - you will need to trade the opposite side to exit those.

This often happens when:

• You use a market order in a thin market, or
• You try to trade a lot of size at once.

If you planned to pay about $0.50 but your average fill ends up being $0.55, that 5-cent difference is slippage. It’s the hidden cost of trading into weak liquidity.

Execution covers:

• Did you get the amount you wanted?
• Did you get a reasonable price?
• How much slippage did you eat?

Good execution feels boring and clean. Bad execution feels like, “Wait, how did I end up paying that much?”

High liquidity:

• Lots of buyers and sellers.
• Plenty of contracts available.
• Tight spreads between bid and ask.

Low liquidity:

• Few traders.
• Small sizes available.
• One medium-sized order can shove the price around.

Liquid markets feel smooth. Illiquid markets feel sticky and expensive.

Depth is about size, not just price:

• If there are thousands of contracts available near the current price, the market is deep.
• If you only see a handful of contracts at each level, it’s shallow.

Deep markets let you trade more without causing big price jumps.

If the best bid is $0.42, that means there is at least one buyer willing to pay $0.42 per contract right now.

If you sell at the market, you’ll sell into the bid – you’ll be hitting that $0.42 buyer (or better).

If the best ask is $0.45, that’s the cheapest contract you can buy right now.

If you buy at the market, you’ll pay the ask - you’re taking someone’s standing offer to sell at $0.45.

Example:

• Best bid: $0.42
• Best ask: $0.45
• Bid–ask spread: $0.03

Tighter spreads are better for you; they mean the market is efficient and you’re giving up less value just to enter or exit. Wide spreads are a red flag for higher trading costs.

Signs of a thin market:

• Small sizes at each price.
• Big jumps between price levels.
• Your order moves the price a lot.

Thin markets aren’t unplayable, but they punish impatience and big market orders.

Volume tells you how active a market has been:

• High volume = lots of trades, lots of interest.
• Low volume = quiet market, not many people involved.

Volume doesn’t tell you which side is right, but it does tell you whether you’re stepping into a busy conversation or talking to yourself.

Once the event is done and the rules are applied, the market is resolved:

• It might resolve to YES, NO, or  on rare occasions INVALID.
• After that, prices stop moving and the game is over.

Resolution is where your open positions turn into actual profit or loss.

When a market resolves:

• “Resolved YES” means YES contracts get the full payout, NO contracts get $0.
• “Resolved NO” means NO contracts get the full payout, YES contracts get $0.

You can’t trade the market anymore once it has resolved. At that point, it’s just waiting for balances to update.

Settlement is the money part:

• Winning contracts pay out their par value (usually $1 each).
• Losing contracts expire worthless.

Sometimes there’s a short delay between resolution and final settlement, especially if the platform has manual checks or a dispute period.

Every market has some kind of end time. For example:

For “Will X happen by [date]?” markets, expiration is usually on or just before that date.

After expiration, you typically cannot open new positions. The next step is for the platform to resolve and settle based on what actually happened.

Examples:

• A specific government website or data release.
• A named news outlet.
• A particular scoreboard or index.

If you’re ever unsure how a messy event will be judged, check the listed resolution source in the market details. That’s the reference the platform will use.

• On centralized platforms, the “oracle” is usually the internal team that checks the resolution source and pushes the result.
• On crypto-style markets, an oracle is usually a smart contract system that reads from external data feeds.

Either way, the oracle’s job is the same: tell the system what actually happened and facilitate the resolution process.

Common reasons:

• The question was ambiguous.
• The event did not happen in any of the ways described.
• The resolution source broke, changed, or contradicted itself.

Platforms have specific rules for how invalid markets are handled, often returning funds or giving partial refunds instead of full winners and losers.

If someone believes the market was resolved incorrectly or the rules were not followed, they can raise a dispute during this window.

After the dispute window closes, the result is usually treated as final and balances remain as settled.

In prediction markets, arbitrage usually means:

• Buying low on one side (or platform) and selling high on another, or
• Taking combinations of positions that cover all outcomes for more than $1 total payout.

Real arbitrage is rare and quickly disappears, but when it shows up, it’s basically free money if you understand the mechanics.

Examples:

• You’re heavily exposed to “Candidate A wins” in one market, so you buy some “Candidate B wins” contracts elsewhere to soften the blow if A loses.
• You work in an industry tied to interest rates, so you use a Fed rate hike market to offset some real-world risk.

Hedging trades some potential profit for more stable outcomes if things go against you.

If a market resolves a certain way and it massively helps or hurts you, you are highly exposed to that outcome.

• Big positions = big exposure.
• Small positions = small exposure.

When you hear “I’m overexposed to this event,” it means “If I’m wrong, this is going to hurt.”

Your bankroll is not your net worth. It’s the pool you’re willing to risk in this activity.

Good bankroll management means:

• You don’t bet so big that one bad event wipes you out.
• You size your positions so you can survive a losing streak.

Even sharp traders go bust if they treat their bankroll like an infinite ATM.

People often say things like “I’m in for 1 unit” or “This is a 3-unit position.”

• If your unit is $50, then 3 units = $150.
• Using units makes it easier to think in relative size, not just raw dollars.

For prediction markets, your “unit” might be something like 10 or 20 contracts in typical markets.

Example:

• Your account peaks at $5,000.
• A rough month pulls you down to $3,800.
• That’s a $1,200 drawdown, or 24%.

Drawdowns are normal. The danger is when they’re so deep that you tilt, chase losses, or run out of bankroll before you ever recover.

In practice, people use it half-insult, half compliment:

• “Total degen move” might mean a huge bet on a crazy longshot.
• “I’m going full degen” usually means “I know this is dumb, I’m doing it anyway.”

You’ll see it thrown around a lot in prediction market chats and crypto circles.

When a whale hits a market:

• Prices can jump fast
• Liquidity disappears or appears in big chunks

Sometimes following whales is smart. Sometimes they’re just rich and wrong. Size alone doesn’t make anyone sharp.

If you 'ape into' a market, you’re basically saying you saw something, got hyped, and bought into the bandwagon.

It’s fun to follow Redditors or Discord influencers, but if you ape in all the time, you’re not trading - you’re mostly just lighting your bankroll on fire.

In prediction markets, bagholders are the people who never cut their losses even when the event clearly turned against them.

Typically:

• They bought high, price went low
• They refuse to sell for a loss, so they 'hold the bag' all the way down to zero

If people say 'this market is going to the moon', they expect the price of that contract (or token) to skyrocket.

Reality check: most things do not, in fact, go to the moon. Treat this phrase as emotion, not analysis.

A dump can happen because:

• New information hits
• A whale exits
• Traders panic

On a chart, a dump looks like a sudden cliff. If you’re on the wrong side of it, it feels worse than it looks.

Examples:

• Constantly sniping mispriced offers but never leaving standing orders.
• Copying other platforms’ markets and sucking away their traders.

It’s more an insult than a precise technical term, but you’ll see it used any time someone seems to be taking without giving.