Prediction Market Glossary: Complete Reference

This glossary defines 40+ terms used across prediction market platforms, sports betting, and forecasting research. Each definition is written for practitioners — traders, analysts, and researchers who need precise language. Terms are grouped by category with cross-references where concepts overlap.

Market Mechanics

These terms describe how prediction markets function as trading infrastructure — the matching engines, order types, and liquidity mechanisms that underpin price discovery.

CLOB (Central Limit Order Book) — The primary matching engine used by Polymarket and Kalshi. Buyers and sellers submit orders at specific prices; trades execute when a bid meets an ask. CLOBs provide price transparency because all resting orders are visible — the same architecture used by NYSE and NASDAQ. Our dataset tracks CLOB-sourced prices across platforms.

LMSR (Logarithmic Market Scoring Rule) — An automated market maker algorithm designed by Robin Hanson. LMSR sets prices mathematically based on net shares outstanding in each outcome. It guarantees liquidity at every price level but requires a subsidy. Augur and early Gnosis markets used LMSR; most high-volume platforms have since migrated to CLOBs.

Order Book — The visible list of all resting buy and sell orders for a contract, organized by price. A deep order book (many orders at tight intervals) indicates high liquidity. A thin order book (few orders, wide gaps) means trades will move the price significantly.

Spread — The difference between the highest bid and the lowest ask. A $0.01 spread indicates an efficient, liquid market. A $0.10 spread signals low liquidity or high uncertainty. Also called the bid-ask spread.

Bid-Ask — The bid is the highest price a buyer will pay; the ask is the lowest price a seller will accept. The midpoint is often used as the “fair value” estimate. A contract with a $0.64 bid and $0.66 ask has a midpoint of $0.65.

Liquidity — The ability to buy or sell contracts without significantly moving the price. High liquidity means large orders execute with minimal price impact. Determined by order book depth, active market makers, and trading volume.

Market Maker — A participant or algorithm that continuously posts both buy and sell orders, profiting from the spread. Market makers provide liquidity and tighten spreads. On Polymarket, professional market makers account for a significant share of resting order book volume.

AMM (Automated Market Maker) — A smart contract that uses a mathematical formula to set prices algorithmically, rather than matching discrete orders. AMMs guarantee a trade is always available at some price. Uniswap popularized the constant-product AMM; prediction markets have used LMSR variants. CLOBs have largely replaced AMMs on high-volume platforms.

Limit Order — An order to buy or sell at a specified price or better. A limit buy at $0.40 only executes if a seller offers at $0.40 or below. Limit orders rest on the order book until filled or cancelled and provide liquidity to the market.

Market Order — An order that executes immediately at the best available price. Guarantees execution but not price — in a thin order book, a large market order can cause significant slippage.

Position — The contracts a trader currently holds. A “long” YES position profits if the event occurs; a “short” position (or holding NO contracts) profits if it does not. Position size determines exposure.

How Are Probability and Accuracy Measured?

These terms define how forecasters and platforms quantify prediction accuracy — the scoring rules and calibration metrics that separate signal from noise.

Calibration — Whether probability estimates match observed outcomes over many predictions. If a forecaster assigns 70% to 100 events, approximately 70 should occur. Calibration curves plot predicted probability against actual frequency — a perfect curve is a 45-degree diagonal.

Brier Score — A scoring rule measuring probabilistic prediction accuracy, scaled from 0 (perfect) to 2 (worst). Calculated as the mean squared difference between predicted probabilities and outcomes (0 or 1). A Brier score of 0.25 equals always predicting 50%. Lower is better.

Resolution — Determining an event’s outcome and settling contracts. Resolution criteria are defined at market creation (e.g., “per Associated Press call”). YES contracts pay $1.00 and NO contracts pay $0. Disputes arise when outcomes are ambiguous or criteria are contested.

Implied Probability — The probability derived from a contract’s market price. A contract at $0.72 implies 72% probability. On platforms with fees, the raw implied probability differs slightly from the displayed price because fees compress the effective odds.

Overconfidence — A calibration pattern where predictions are too extreme. A forecaster’s 90% predictions come true only 75% of the time. Overconfidence is the most common calibration error among individual forecasters.

Underconfidence — The inverse: predictions are too conservative. A 60% prediction comes true 75% of the time. Prediction markets tend toward slight underconfidence on low-probability events — prices for unlikely outcomes are often higher than warranted.

Base Rate — The historical frequency of an event category, independent of specifics. The base rate for incumbent US presidents winning reelection is roughly 67% since 1900. Anchoring to base rates and adjusting is a foundational forecasting technique.

Trading Concepts

Terms used by active traders to evaluate positions, measure edge, and manage risk.

Closing Price — The final trading price before a market resolves. The closing price is the benchmark against which all earlier predictions are measured. Research on closing line value shows closing prices are typically the most accurate estimates available.

CLV (Closing Line Value) — The difference between a trader’s entry price and the closing price. Consistently buying below the closing price is the strongest indicator of a profitable trader — the prediction market equivalent of “beating the closing line.” See our CLV analysis.

Arbitrage — Buying and selling the same outcome across platforms to lock in risk-free profit. If Polymarket prices a contract at $0.60 and Kalshi at $0.65, buying low and selling high yields $0.05 per contract minus fees. Cross-platform gaps are visible on our dashboard.

Hedge — A position taken to offset risk from an existing exposure. Holding YES on “Party A wins” and YES on “Party B wins” reduces maximum loss. Hedging sacrifices upside for downside protection.

Portfolio — The complete set of positions across all markets and platforms. Portfolio management involves monitoring correlated exposures — political markets often move together on the same news.

Exposure — The maximum a trader can gain or lose on current positions. Holding 1,000 YES contracts at $0.40 means $400 at risk and $600 in potential profit.

Leverage — Amplifying returns through borrowed capital or structured positions. Most prediction platforms do not offer direct leverage, but correlated positions across markets create implicit leverage.

Platform Terms

Platform-specific vocabulary, regulatory designations, and infrastructure terms.

Mana — The virtual currency used on Manifold Markets. Mana has no cash value and cannot be withdrawn. Despite the absence of financial stakes, play-money markets achieve calibration comparable to real-money markets on high-profile events.

Event Contract — The CFTC regulatory term for binary contracts that pay out based on a specified event. This is the instrument traded on Kalshi and other regulated exchanges, distinguished from futures, options, and swaps.

CFTC (Commodity Futures Trading Commission) — The US federal agency regulating derivatives markets, including prediction exchanges. The CFTC approved Kalshi’s DCM application in 2020, establishing the first regulated prediction market in the United States.

DCM (Designated Contract Market) — A CFTC designation authorizing an exchange to list event contracts. Kalshi holds DCM status, which requires meeting 23 core principles covering surveillance, integrity, and customer protection. For platform background, see our prediction market overview.

KYC (Know Your Customer) — Identity verification required by regulated platforms. Kalshi requires government ID and SSN for US residents. Polymarket imposes verification thresholds for larger positions. KYC is the primary friction point for onboarding.

USDC (USD Coin) — A stablecoin pegged 1:1 to the US dollar, issued by Circle. Polymarket uses USDC for deposits, trading, and settlement on Polygon. Unlike volatile cryptocurrencies, USDC maintains a stable dollar value.

What Sports Betting Terms Cross Over to Prediction Markets?

Many prediction market traders come from sports betting, and the vocabulary overlaps substantially. Our guide to reading betting odds covers format conversions in depth.

Vig / Vigorish / Juice — The fee embedded in odds by a sportsbook or exchange. In prediction markets, the vig appears when complementary contract prices sum to more than $1.00. YES at $0.55 plus NO at $0.48 equals $1.03 — the $0.03 excess is the vig. CLOB platforms typically charge per-trade fees instead.

Sharp — A professional trader whose activity moves prices. Sharp action on Polymarket often precedes news events by minutes or hours, shifting the price toward the eventual outcome.

Square — A recreational trader. Square money follows narratives and sentiment rather than fundamentals. When sharp and square money diverge, the price displacement creates opportunities.

Line Movement — A change in market price over time, reflecting new information, sentiment shifts, or large order flow. Rapid line movement during election nights is the prediction market equivalent of live in-game odds movement.

Opening Line — The initial price when a market begins trading. Opening lines are less accurate than later prices because they incorporate less information. The gap between opening and closing price measures how much the market learned.

Closing Line — The final price before resolution. Across thousands of resolved markets in our dataset, the closing line is consistently the most accurate probability estimate available.

Moneyline — An odds format expressing payoff as a single number. Positive (+200) shows profit on a $100 stake; negative (-150) shows the stake needed for $100 profit. A $0.40 prediction market contract equals +150 moneyline.

Spread — In sports betting, the point handicap on a contest. In prediction markets, “spread” usually means the bid-ask spread. Some platforms offer margin-of-victory contracts that function like traditional spreads.

Total / Over-Under — A market on whether a quantitative outcome exceeds a threshold. Sportsbooks offer totals on game scores; prediction markets offer analogous contracts on economic indicators, vote margins, and other measurable outcomes.

Key Takeaways

• CLOB dominance: Most high-volume prediction markets now use central limit order books — the same architecture as stock exchanges. AMMs persist for bootstrapping and low-liquidity markets.
• Calibration is the gold standard: A forecaster is only as good as their calibration — whether 70% predictions actually come true 70% of the time.
• CLV separates skill from luck: Consistently entering positions at prices better than the closing line is the most reliable indicator of genuine edge.
• Cross-platform arbitrage exists: Price discrepancies between Polymarket, Kalshi, and Metaculus create trading opportunities tracked in real time on our dashboard.
• Sports betting vocabulary applies directly: Vig, sharp/square dynamics, and line movement all have direct analogs in prediction markets.

Odds Reference tracks markets across Polymarket, Kalshi, and Metaculus simultaneously — view the live dashboard to see these concepts in action.