Prediction Market Terms: The Complete Glossary

Every prediction market platform borrows vocabulary from three different worlds — options trading, crypto, and traditional futures markets — and mashes it together. This glossary defines the prediction market terms you'll actually run into on Kalshi and Polymarket in 2026, grouped by category, with real mechanics attached to each definition instead of a one-line dictionary blurb.

Core contract terms

YES/NO share

The two possible positions in a binary event market. A YES share pays $1 if the event happens and $0 if it doesn't; a NO share pays the opposite. Kalshi prices run $0.01-$0.99, with one YES and one NO always summing to $1. Polymarket prices run $0.00-$1.00.

Event contract

Kalshi's term for a YES/NO market tied to a real-world outcome — an election, an economic data release, a weather threshold. Functionally the same instrument as a Polymarket market.

Resolution

The process of finalizing a market's outcome and paying winning shares $1, losing shares $0. Kalshi resolves via its own sourced data; Polymarket resolves via the UMA Optimistic Oracle. See how does Polymarket work for the full mechanism.

UMA Optimistic Oracle

Polymarket's decentralized resolution system. A proposer posts an outcome plus a USDC bond — about $750 for a standard question, $5,000 or more for high-value markets. Uncontested proposals settle in hours; disputes escalate to a UMA token-holder vote taking 4-7 days.

Conditional Token Framework (CTF)

The ERC-1155 token standard underlying Polymarket's on-chain settlement, letting YES/NO shares be represented and transferred as blockchain tokens on Polygon.

Strike / threshold

The specific numeric or categorical line a market resolves against — for example, "will Fed funds rate be above 4.00% on [date]." Many economic and weather contracts on Kalshi are structured around a threshold rather than a single yes/no political event.

Binary market

A market with exactly two possible outcomes — YES or NO. The standard structure for most Kalshi and Polymarket contracts.

Multi-outcome market

A market with more than two mutually exclusive outcomes — for example, "who wins the Democratic nomination" with a dozen named candidates each trading their own YES/NO contract, where all the YES prices across candidates should roughly sum to $1.

Position

The shares a trader currently holds in a given market, whether YES or NO, open until sold or the market resolves.

Settlement date

The date a market's outcome becomes final and payouts are distributed, distinct from the event date itself when resolution requires official confirmation (e.g., vote certification).

Regulatory and structural terms

Designated Contract Market (DCM)

The CFTC license category for a regulated derivatives exchange. Kalshi has held DCM status since November 4, 2020. Polymarket's US exchange operates through QCEX, a DCM it acquired in July 2025.

Derivatives Clearing Organization (DCO)

The clearinghouse entity that holds customer funds and guarantees trade settlement on a regulated exchange. Kalshi's DCO is Kalshi Klear LLC, paired with the DCM entity KalshiEX LLC.

No-action framework

A lighter regulatory posture the CFTC grants to certain platforms — the Iowa Electronic Markets and PredictIt both operate this way — allowing limited-scope trading without full DCM licensing.

Amended Order of Designation

The specific CFTC authorization Polymarket received in November 2025, letting it run an intermediated, federally regulated US exchange through its QCEX acquisition.

Commodity Exchange Act (CEA)

The federal statute giving the CFTC jurisdiction over derivatives, including event contracts. The Third Circuit cited the CEA in May 2026 to rule that CFTC jurisdiction over sports event contracts on licensed DCMs preempts conflicting state gambling law.

Preemption

The legal principle that federal law overrides conflicting state law. Central to the Third Circuit's May 2026 ruling in Kalshi's favor over New Jersey's sports-contract restrictions.

Order book and execution terms

Central Limit Order Book (CLOB)

The matching engine both Kalshi and Polymarket use, ranking buy and sell orders by price and time priority. Polymarket's CLOB matches orders off-chain and settles on-chain through the CTF.

Maker/taker

A maker posts a resting limit order that adds book depth; a taker executes against an existing order and removes liquidity. Polymarket makers are never charged a trading fee and can earn rebates; takers pay the category fee schedule.

Bid/ask

The highest price a buyer is currently offering (bid) and the lowest price a seller is currently asking (ask). Kalshi's order book displays bids only — a YES bid at $X is equivalent to a NO ask at $1 minus X.

Spread

The gap between the best bid and best ask. Tighter spreads generally indicate deeper, more liquid markets; wide spreads on thin books mean a market order can move the price significantly.

Liquidity rewards

Polymarket's maker incentive program. Resting orders are scored every minute on closeness to midpoint and depth, and rewards pay out in pUSD daily at 00:00 UTC, with a $1/day minimum threshold.

Open interest (OI)

The total outstanding contracts in a market that haven't been closed. Rising OI with a rising price usually signals fresh capital entering; falling OI on a sharp move can signal unwinding rather than new conviction.

Market depth

The total size resting on the order book at each price level away from the best bid/ask, indicating how much volume a price can absorb before moving significantly.

Market order

An order that executes immediately against the best available price on the opposite side of the book, guaranteeing execution but not price — always a taker order.

Limit order

An order placed at a specific price that only executes at that price or better, resting on the book until filled or cancelled — a maker order until it's matched.

Slippage

The difference between the price a trader expected and the price actually filled, typically caused by thin order-book depth or fast-moving markets.

Trading and analysis terms

Arbitrage

Trading a price gap between equivalent contracts on two venues — for instance the same Senate-control contract priced differently on Kalshi versus Polymarket — after accounting for each platform's fees. See prediction market arbitrage.

Vig (vigorish)

The built-in trading cost embedded in fees or spread that keeps a market from paying out its true probability. On event contracts this shows up mainly as the per-trade taker fee.

Time & sales tape

The chronological record of executed trades — price, size, and side — used to read real-time order flow rather than just the resting book.

Block trade

An unusually large single trade relative to a market's normal volume, often signaling a well-informed or high-conviction participant entering a position.

Cumulative Volume Delta (CVD)

A running total of buy-initiated minus sell-initiated volume, used to see whether aggressive buying or selling pressure is building independent of the visible price.

Point of Control (POC)

The single price level with the most traded volume over a given window, typically shown on a volume profile next to a candlestick chart, marking where the market has found the most agreement on value.

Expected value (EV)

The probability-weighted average outcome of a trade — price paid versus true probability of winning, adjusted for fees. A core filter for deciding whether a contract is priced favorably.

Bankroll management

Sizing individual positions as a fraction of total trading capital to survive a losing streak without being forced out of the market.

Hedging

Taking an offsetting position — often across two correlated markets or two venues — to reduce exposure to a single outcome rather than eliminate it entirely.

Whale

A trader whose position size is large enough to move a market's price noticeably on its own, often identifiable in the tape via block trades.

Fee tier

The specific fee rate applied to a trade based on category and/or price. Polymarket's 2026 taker fees vary by category (sports, politics, crypto, etc.); Kalshi's fee formula varies by price distance from 50 cents.

Accuracy and forecasting terms

Brier score

A forecast-accuracy measure calculated as the mean squared error between predicted probability and actual binary outcome (0 or 1) — lower is better. Reported figures put Polymarket's average around 0.15-0.18 versus roughly 0.22-0.25 for traditional polls across 2024-2025 elections, per secondary analysis; treat this as a reported estimate rather than an audited statistic.

Calibration

How closely stated probabilities match real-world frequency. Research on event markets found the ~70% probability bucket landing around 68-72% actual occurrence, with the most extreme buckets (90-100%) typically the most accurate — see how accurate are prediction markets.

Wisdom of crowds

The underlying theory that aggregated, financially-incentivized beliefs from many independent traders outperform any single expert or poll — the founding premise tested by the Iowa Electronic Markets starting in 1988.

Risk and platform-safety terms

Kill switch

A manual or automated control that immediately cancels all open orders and halts further order submission, used to stop an automated strategy the moment something looks wrong.

Dead-man switch

An automated safeguard that cancels resting orders or flattens a position if the connection to the exchange drops or a heartbeat signal stops, so a market maker's quotes don't sit stale and exposed during an outage.

Drawdown auto-disarm

A risk-management feature that automatically pauses an automated trading strategy once losses hit a preset threshold, preventing a bad run from compounding unattended.

Collateral (USDC/pUSD)

The funds backing a position. Polymarket uses USDC on deposit, wrapped into pUSD as its internal collateral token for trading and settlement on Polygon.

Paper trading

Simulated trading with no real capital at risk, used to test a strategy's logic and a platform's mechanics before going live.

Backtesting

Running a trading strategy against historical market data to evaluate how it would have performed, before risking capital on it live.

Terms not covered here that are specific to one platform's mechanics — like Kalshi's fee formula or Polymarket's category taker-fee tiers — are broken out in Kalshi fees explained and Polymarket fees explained. For the foundational overview this glossary builds on, start with what are prediction markets.

FAQ

What is a YES/NO share in a prediction market?

A YES share pays $1 if the underlying event happens and $0 if it doesn't; a NO share pays the opposite. The traded price, generally between $0.01 and $0.99, reflects the market's implied probability of the YES outcome.

What is the UMA oracle and how does it resolve Polymarket markets?

The UMA Optimistic Oracle is the decentralized system Polymarket uses to settle market outcomes. A proposer posts the outcome plus a USDC bond; if nobody disputes it, the market settles in hours, and if someone does dispute it, the case goes to a UMA token-holder vote that typically takes 4-7 days.

What's the difference between a maker and a taker?

A maker posts a resting limit order that adds liquidity to the book and typically pays lower fees, sometimes earning rebates. A taker executes immediately against an existing order, removing liquidity, and generally pays the higher fee tier.

What does DCM mean in prediction markets?

DCM stands for Designated Contract Market, the CFTC license category that governs regulated derivatives exchanges in the US. Kalshi has held DCM status since November 2020, and Polymarket's US exchange operates under a DCM-linked license obtained through its 2025 acquisition of QCEX.

This article is for educational purposes only and is not financial advice. Trading involves risk of loss.