Prediction Market Glossary
Every term you need to understand prediction markets, explained in plain language.
A
Arbitrage
The practice of exploiting price differences between markets to make a risk-free profit. In prediction markets, arbitrage occurs when the combined prices of all outcomes in a market add up to more or less than 100%, creating an opportunity for traders to lock in guaranteed returns.
B
Binary Market
A prediction market with exactly two possible outcomes: Yes or No. Most markets on Polymarket are binary. For example, 'Will Bitcoin reach $100k by December?' has two outcomes. This is the most common market type you will encounter on Outcalled.
Play the Daily Game →C
Calibration
A measure of how well your predictions match actual outcomes over time. If you predict 70% probability events and they happen 70% of the time, you are well-calibrated. Good calibration means your confidence levels accurately reflect reality. The Margin Call game mode tests this skill directly.
Test your calibration →Categorical Market
A prediction market with more than two possible outcomes. For example, 'Who will win the election?' might have 5 candidates as possible outcomes. Each outcome has its own price, and the prices of all outcomes should sum to approximately 100%.
CLOB (Central Limit Order Book)
The system that matches buyers and sellers in a prediction market. The CLOB maintains a list of all buy and sell orders, sorted by price. When a buy order matches a sell order, a trade executes automatically. Polymarket uses a hybrid CLOB system to provide efficient trading.
Conditional Market
A market that only resolves if a specific condition is met first. For example, 'If Candidate X wins the primary, will they win the general election?' This type of market lets traders express more nuanced predictions about chains of events.
Contrarian
A trader who deliberately takes positions opposite to the crowd. In prediction markets, contrarians buy shares in outcomes that most people think are unlikely. When they are right, the payoff is large because they bought at low prices. Being a successful contrarian requires independent thinking and strong conviction.
D
DeFi (Decentralized Finance)
A broad category of financial services built on blockchain technology. Polymarket is part of the DeFi ecosystem because it operates on the Polygon blockchain. DeFi allows for permissionless trading, transparent settlement, and programmable financial contracts without traditional intermediaries.
E
Event Contract
A financial contract that pays out based on the outcome of a specific event. In prediction markets, buying a 'Yes' share is an event contract that pays $1 if the event happens and $0 if it does not. Event contracts are the fundamental building blocks of prediction markets.
F
Fair Value
The theoretical true probability of an outcome, as opposed to its current market price. Skilled traders try to identify when market prices deviate from fair value and trade accordingly. If you think a market priced at 30% should really be 50%, there is potential profit in buying Yes shares.
Forecast
A prediction about the likelihood of a future event. In prediction markets, forecasts are expressed as probabilities derived from market prices. A market trading at 75 cents implies a 75% forecast that the event will happen. Outcalled games let you practice your forecasting skills risk-free.
Practice forecasting →I
Implied Probability
The probability of an outcome as suggested by its market price. If a Yes share costs $0.65, the implied probability is 65%. This is what the crowd collectively believes about the likelihood of that outcome. Understanding implied probability is essential for interpreting prediction market data.
L
Limit Order
An order to buy or sell shares at a specific price or better. Unlike market orders that execute immediately, limit orders wait in the order book until the market reaches your desired price. Limit orders give you more control over the price you pay but may not execute if the market never reaches that price.
Liquidity
The ease with which shares can be bought or sold in a market without significantly affecting the price. High-liquidity markets have many buyers and sellers, tight spreads, and large order books. Low-liquidity markets can have wide spreads and be harder to trade in and out of.
Long Position
Holding Yes shares in a prediction market. Going long means you believe the event will happen. If you buy Yes shares at $0.40 and the event happens, each share pays out $1.00 for a $0.60 profit. The lower the price when you buy, the higher your potential return.
M
Market Maker
A trader or automated system that provides liquidity by continuously placing both buy and sell orders. Market makers profit from the spread between their buy and sell prices. They play a crucial role in prediction markets by ensuring there is always someone to trade with.
Market Order
An order to buy or sell shares immediately at the best available price. Market orders execute instantly but you may get a worse price than expected in low-liquidity markets. Most casual traders use market orders because they prioritize speed over price optimization.
O
Odds
The ratio expressing the likelihood of an event happening versus not happening. In prediction markets, odds are often expressed as probabilities (percentages) rather than traditional fractional or decimal odds. A market at 75% is equivalent to 3:1 odds in favor.
Order Book
A real-time list of all outstanding buy and sell orders for a market. The order book shows the depth of demand at each price level. Thick order books indicate high liquidity and stable prices. Thin order books mean prices can move quickly with relatively small trades.
Outcome
One of the possible results of a prediction market. In a binary market, the outcomes are Yes and No. In a categorical market, there can be many outcomes. Each outcome has its own tradeable shares and market price. When a market resolves, exactly one outcome is declared the winner.
P
Polymarket
The world's largest prediction market platform. Built on the Polygon blockchain, Polymarket lets traders buy and sell shares on thousands of real-world events using USDC. It covers politics, crypto, sports, entertainment, and more. All data on Outcalled comes from Polymarket.
Explore Polymarket →Prediction Market
A market where participants trade contracts that pay out based on the outcome of future events. The price of each contract reflects the crowd's estimated probability of that outcome. Prediction markets harness the wisdom of crowds by giving traders financial incentives to be accurate.
Learn more about prediction markets →Probability
A number between 0% and 100% expressing how likely an event is to occur. In prediction markets, probability is derived from the market price of shares. A higher price means the crowd thinks the event is more likely. 50% means the crowd is split evenly on whether it will happen.
R
Resolution
The process of determining the final outcome of a prediction market. When the event a market is based on occurs (or fails to occur), the market resolves. Winning shares pay out $1.00 and losing shares pay out $0.00. The Daily Game on Outcalled uses already-resolved markets.
Play with resolved markets →Resolution Source
The trusted authority or data source used to determine how a market resolves. This could be a news organization, a government agency, a blockchain oracle, or any other verifiable source. Resolution sources are defined when a market is created and ensure fair, objective settlement.
Risk Management
The practice of controlling potential losses in your trading portfolio. In prediction markets, this includes position sizing, diversification across markets, setting exit points, and not risking more than you can afford to lose. Good risk management is what separates successful traders from gamblers.
S
Scalar Market
A prediction market that resolves to a value on a numeric scale rather than a binary Yes/No outcome. For example, 'What will the temperature be on January 1st?' with a range of -10 to 40 degrees. Payouts are proportional to where the actual result falls on the scale.
Short Position
Holding No shares in a prediction market, or selling Yes shares you previously bought. Going short means you believe the event will not happen. If you buy No shares at $0.30 and the event does not happen, each share pays out $1.00 for a $0.70 profit.
Spread
The difference between the highest buy price and the lowest sell price in a market's order book. A narrow spread indicates high liquidity and means you can buy and sell close to the true market price. A wide spread means less liquidity and higher trading costs.
U
USDC (USD Coin)
A stablecoin pegged 1:1 to the US dollar. USDC is the currency used on Polymarket for all trades. It combines the stability of the dollar with the speed and programmability of cryptocurrency. You can buy USDC on most major exchanges or directly through Polymarket.
V
Volume
The total amount of money traded in a market over a given period. High volume indicates strong interest and usually means better liquidity. On Outcalled, you can see each market's trading volume, which helps gauge how much real money is behind the crowd's prediction.
W
Wisdom of Crowds
The principle that the collective judgment of a large group of people is often more accurate than any individual expert. Prediction markets are a direct application of this principle. When thousands of traders put real money on the line, the resulting probabilities tend to be remarkably well-calibrated.
Test the crowd's wisdom →