Prediction Market Glossary
Key terms and definitions for prediction market traders
Arbitrage
The practice of profiting from price differences for the same event across different prediction market platforms. When one platform prices an event higher than another, traders can buy low and sell high for a risk-free profit.
Ask
The lowest price a seller is willing to accept for a prediction market contract. The ask represents supply of the contract.
Basis Points (BPS)
A unit of measurement equal to 1/100th of 1 percent. In prediction markets, 100 bps equals 1 cent. Used to measure arbitrage spreads between platforms.
Bid
The highest price a buyer is willing to pay for a prediction market contract. The bid represents demand for the contract.
Bid-Ask Spread
The difference between the highest bid and lowest ask price for a contract. Tighter spreads indicate better liquidity and lower trading costs.
Binary Contract
A contract that pays $1 if an event occurs and $0 if it doesn't. The price of a binary contract represents the market's implied probability of the event.
CLOB
Central Limit Order Book. An electronic system that matches buy and sell orders by price and time priority. Used by Polymarket and other prediction market platforms.
Cross-Platform Arbitrage
Arbitrage opportunities that exist between two different prediction market platforms (e.g., Polymarket vs Kalshi) for the same event.
Implied Probability
The probability of an event occurring as implied by the market price. A contract trading at 65 cents implies a 65% probability.
Liquidity
The ease with which contracts can be bought or sold without significantly affecting the price. Higher liquidity means tighter spreads and better execution.
Market Maker
A participant who provides liquidity by placing both buy and sell orders, earning the bid-ask spread as compensation for the service.
Market Resolution
The process of settling a prediction market contract when the event outcome is determined. Winning contracts pay $1, losing contracts pay $0.
Open Interest
The total number of outstanding contracts that have not been settled. Higher open interest indicates more market participation.
Overround
When the sum of implied probabilities for all outcomes exceeds 100%, indicating the market maker's built-in margin. Also called vigorish or vig.
Settlement
The final payout process after a market resolves. Settlement terms vary by platform — Polymarket settles in USDC, Kalshi in USD.
Volume
The total dollar value of contracts traded in a market. Higher volume generally indicates more interest and better price discovery.