Prediction market glossary: 56 terms defined
This glossary defines the terms you will meet on Kalshi, Polymarket US and other US prediction markets, as of November 2026. Each entry is one or two sentences. Where a rule or formula comes from an official source, the entry says which one.
For the mechanics in context, start with how prediction markets work and how to read prices as probabilities.
A
- Arbitrage: Buying and selling identical or equivalent contracts in different markets to profit from a price difference; the CFTC glossary defines it as "the simultaneous purchase and sale" of such contracts. Across prediction markets it is never risk-free, because two platforms can resolve the "same" question under different rules or sources.
- Ask: The lowest price at which someone is currently offering to sell a contract, and so the price you pay if you buy immediately.
B
- Bid: The highest price someone is currently offering to pay for a contract, and so the price you receive if you sell immediately.
- Binary option: In the CFTC's words, "a type of option whose payoff is either a fixed amount or zero." A Yes/No event contract that pays $1 or $0 has the same all-or-nothing payoff.
- Break-even probability: The win rate at which a trade neither makes nor loses money after fees, equal to your total cost per contract divided by the $1 payout. A Kalshi taker buying at 40¢ pays a 0.0168 fee per contract, so break-even is 41.68%.
- Brier score: A common accuracy measure for probability forecasts, the average squared gap between the forecast (such as 0.70) and the outcome (1 or 0). Lower is better; researchers use it to compare markets with polls and models.
C
- Calibration: How closely forecast probabilities match real frequencies over many events. A well-calibrated market's 70¢ contracts win about 70% of the time.
- CFTC: The Commodity Futures Trading Commission, the federal agency that regulates US futures, options and swaps markets, including designated contract markets that list event contracts.
- Clearing organization: An entity "through which futures and other derivative transactions are cleared and settled," per the CFTC glossary. One registered with the CFTC is a derivatives clearing organization (DCO).
- Combo: A single contract that bundles several outcomes, like a parlay, and pays only if every leg is right. On Kalshi, combos (series KXMVE) carry a taker multiplier of 1 and a maker multiplier of 2; Polymarket US uses a separate, higher-cost combo formula. See Kalshi fees.
- Commodity Exchange Act (CEA): The federal law under which the CFTC designates exchanges and oversees derivatives trading.
- Complete set: One Yes share plus one No share on the same market, which together always settle to exactly $1. On Polymarket, a matched Yes buyer and No buyer jointly fund one complete set.
- Contract: The tradable unit in a prediction market. On Kalshi and Polymarket, a winning contract pays $1 and a losing one pays $0.
D
- Designated contract market (DCM): "A board of trade or exchange designated by the CFTC to trade futures, swaps, and/or options under the CEA," per the CFTC glossary. KalshiEX LLC received DCM designation on November 4, 2020.
- DVM (Data Verification Mechanism): UMA's token-holder vote, used for Polymarket.com markets when a proposed outcome is disputed a second time. Polymarket's documentation says the vote takes roughly 48 hours.
E
- Event: A real-world question that can contain one or more related markets. On Kalshi, "Who will win the election?" is an event, and each candidate is a separate market.
- Event contract: A derivative whose payoff depends on whether a specified event occurs, such as a rate decision or a game result. US event contracts trade on CFTC-regulated exchanges.
- Expiration: The time after which a market stops trading and waits for settlement. Kalshi's documentation says markets "typically settle shortly after expiration."
F
- Favorite-longshot bias: The tendency for low-probability outcomes to be overpriced and high-probability outcomes underpriced. A 2025 study of Kalshi found contracts priced at 10¢ or less lost buyers over 60% of their money on average; see are prediction markets accurate?.
- Fee coefficient: The rate in the fee formula
rate × contracts × price × (1 − price). As of November 2026 it is 0.07 for Kalshi takers and 0.0695 for Polymarket US standard markets. - Fill: The part of an order that has executed. An order for 100 contracts can fill 40 now and 60 later, or never.
- Futures commission merchant (FCM): A firm that solicits or accepts customer orders for futures and related contracts and accepts customer money or extends credit to customers, per the CFTC glossary.
H
- Hedging: Taking a position that offsets a risk you already carry. A business exposed to a Fed rate hike might buy a contract that pays if the hike happens.
I
- Implied probability: The chance of an outcome suggested by its price, found by dividing the price by the $1 payout. A 63¢ Yes price implies about 63%.
L
- Limit order: An order "in which the customer specifies a minimum sale price or maximum purchase price," per the CFTC glossary. If it does not match right away, it rests on the order book.
- Liquidity: How easily you can trade without moving the price. The CFTC defines a liquid market as one where "selling and buying can be accomplished with minimal effect on price."
M
- Maker: A trader whose resting order is filled by someone else. Kalshi's maker fee rate is 0.0175 with a multiplier that "is 0 unless otherwise indicated," so makers pay nothing unless a series sets a maker multiplier.
- Market: One tradable Yes/No question within an event. It settles at $1 for the winning side and $0 for the losing side.
- Market maker: A trader or firm that continuously posts both bids and asks, earning the spread in exchange for supplying liquidity.
- Market order: An order to buy or sell immediately at the best available price. On a thin book it can fill across several price levels.
- Midpoint (mid price): The average of the best bid and best ask. Polymarket displays the midpoint as its probability unless the spread is wider than $0.10, when it shows the last trade.
- Multiplier: A per-series factor in Kalshi's fee formula. It defaults to 1 for takers and 0 for makers, and some series use other values.
N
- No share: A contract that pays $1 if the event does not happen. On Kalshi, "a YES BID at price X is equivalent to a NO ASK at price ($1.00 - X)."
O
- Open interest: The number of contracts that are still open, meaning bought and not yet closed or settled. It measures how much money is at stake in a market, unlike volume.
- Oracle: A system that reports real-world outcomes to a blockchain so smart contracts can settle. Polymarket.com uses the UMA Optimistic Oracle.
- Order book: The live list of resting bids and asks with their prices and quantities. Kalshi's API returns only bids, since each Yes bid implies a No ask.
- Overround: The amount by which the implied probabilities of all outcomes add up to more than 100%. At −110 on both sides, a sportsbook's overround is 4.76 points.
P
- Position: The contracts you currently hold in a market, long Yes or long No.
- Price: The amount per contract, from 1¢ to 99¢, that a trade executes at. Kalshi's glossary describes it as the market's implied probability before fees.
- Proposal bond: The deposit a proposer posts when suggesting a Polymarket.com outcome to UMA, typically $750 per Polymarket's documentation. A wrong or early proposal forfeits it.
R
- Resolution: The process of deciding a market's outcome. On Polymarket.com, an undisputed proposal resolves after a two-hour challenge period.
- Resolution source: The data source named in a market's rules that decides the outcome, such as an official statistic or a league's final score. Two platforms listing the same question can name different sources.
- Resting order: A limit order sitting on the book, waiting for a counterparty.
- Rule 40.11: The CFTC regulation (17 CFR 40.11) that bars registered entities from listing event contracts involving "terrorism, assassination, war, gaming, or an activity that is unlawful under any State or Federal law." It also lets the CFTC run a 90-day review of a contract it suspects falls in those categories.
S
- Self-certification: The process under CFTC Regulation 40.2 that lets a DCM list a new contract without prior approval, by certifying it complies with the law no later than the close of business the day before listing.
- Settlement: The payout after resolution. Kalshi's documentation says Yes holders "receive $1 per contract" when Yes wins, and Kalshi charges no settlement fee.
- Slippage: The difference between the price you expected and your average fill price. It happens when an order is larger than the quantity available at the best price.
- Spread: The gap between the best ask and best bid. Kalshi's documentation defines it as "Best YES ask - Best YES bid."
T
- Taker: A trader whose order matches immediately against a resting order. Takers pay the standard fee: 0.07 × C × P × (1 − P) on Kalshi, rounded up.
- Ticker: The exchange's short code for an event or market, used in search and in the API.
U
- UMA: The protocol behind the Optimistic Oracle that resolves Polymarket.com markets. Anyone can propose an outcome by posting a bond, and anyone can dispute it during a two-hour window.
- Unrealized P&L: The estimated gain or loss on an open position at current prices, before you close it.
- USDC: A dollar stablecoin issued by Circle, which describes it as "a regulated digital currency you can redeem 1:1 for US dollars." Polymarket.com's documentation denominates its collateral in pUSD.
V
- Vig: The bookmaker's margin built into sportsbook odds, also called juice. At −110 you risk $110 to win $100.
- Volume: The number of contracts traded over a period. High volume with a tight spread usually means prices are more reliable.
Y
- Yes share: A contract that pays $1 if the event happens and $0 if it does not. Its price is the market's implied probability of Yes.
Definitions here are general information, not investment advice. Prediction market contracts can lose their full value. Kalshi and Polymarket US require users to be at least 18, and some states restrict certain contracts; check availability in your state.
FAQ
What is a designated contract market?
A DCM is an exchange designated by the CFTC to list futures, swaps or options under the Commodity Exchange Act. Kalshi became one on November 4, 2020.
What is the difference between a maker and a taker?
A taker's order fills immediately against a resting order; a maker's order rests on the book until someone else fills it. On Kalshi, takers pay a 0.07-rate fee, while makers pay a 0.0175 rate only in series that set a maker multiplier.
What is CFTC Rule 40.11?
It is the regulation that bars registered exchanges from listing event contracts involving terrorism, assassination, war, gaming or unlawful activity. It also lets the CFTC run a 90-day review of a contract it suspects falls into those categories.
What is the UMA oracle on Polymarket?
UMA's Optimistic Oracle resolves Polymarket.com markets: someone proposes an outcome with a bond, and if no one disputes it within two hours, the market resolves. Repeated disputes go to a vote of UMA token holders.
Information only, not investment or legal advice. Event contracts can lose value; trade only where permitted.