Prediction market glossary.
Clear definitions for the terms you’ll encounter in prediction markets. A useful reference, wherever you are in your learning.
- Ask
- A price at which a participant offers to sell. The best ask is the lowest available ask for an outcome.
- Bid
- A price at which a participant offers to buy. The best bid is the highest available bid for an outcome.
- Binary contract
- A contract with two specified outcomes, commonly paying $1 for the winning side and $0 for the losing side under ordinary settlement.
- Calibration
- How closely forecast probabilities match observed frequencies across many events. In a calibrated set, events assigned 30% occur about 30% of the time.
- Collateral
- Funds or assets committed to support a trading obligation. Required amounts and release rules depend on the product and venue.
- Depth
- The quantity available to trade at different price levels in an order book.
- Event contract
- A financial contract whose payoff depends on a specified event or condition. Often called a prediction contract.
- Expected value
- The probability-weighted average of possible results. An expected profit is not a guaranteed profit on a single trade.
- Implied probability
- The probability interpretation of a price. For a $1-or-$0 contract, a 60¢ price is conventionally read as 60%, subject to assumptions and market frictions.
- Limit order
- An instruction to buy at no more than a specified price or sell at no less than a specified price. Execution is not guaranteed.
- Liquidity
- The ability to trade a given quantity without a large price change. Spread and available depth help describe it.
- Maker
- A participant whose resting order supplies liquidity when another order trades against it. Maker fee treatment varies.
- Midpoint
- The arithmetic average of the best bid and best ask. It is a reference price, not necessarily an executable price.
- Order book
- A record of resting buy and sell interest, organized by price and quantity.
- Payout
- The amount returned under the contract’s settlement rules. Payout includes any returned purchase capital and differs from profit.
- Resolution source
- The named publication, authority, or data provider used to determine whether a contract’s condition was satisfied.
- Settlement
- The process of applying the contract’s payoff after its outcome is determined. Timing and exceptional outcomes follow the rules.
- Slippage
- The difference between a reference or expected execution price and the price actually received, often caused by limited depth or changing quotes.
- Spread
- The difference between the best ask and best bid for the same outcome.
- Taker
- A participant whose order executes against available resting liquidity. An immediately executable limit order can be a taker order.
Want the full picture? Our learning guides put these terms in context and link to the primary sources.