You've probably seen the headlines — someone made millions taking a position on an election, or a prediction market signalled a policy shift before any poll did. Maybe you've clicked into one of these platforms out of curiosity and immediately felt lost in a sea of unfamiliar jargon: implied probability, binary contracts, resolution sources. It's enough to make anyone close the tab.
Here's the thing: prediction markets aren't actually that complicated once you understand the language. And whether you're genuinely interested in trading event contracts or you simply want to follow the news more intelligently, knowing these terms gives you a real edge.
This guide breaks down everything you need to know — from the basics of how prediction markets work to a complete A-to-Z glossary of every term you'll encounter.
Prediction market terms from A to Z
Here's every term we think you're likely to encounter, defined in plain language.
Arbitrage — Exploiting price differences for the same contract across different platforms to lock in a theoretically risk-free profit (all trading involves risk). In practice, transaction costs and timing delays usually prevent true risk-free arbitrage, but traders still watch for these gaps.
Ask price — The lowest price a seller is currently willing to accept for a contract. If the ask on "yes" shares is $0.62, that's the cheapest price available right now.
Bid price — The highest price a buyer is currently willing to pay. If the bid is $0.58, that's the most someone will pay at this moment.
Bid-ask spread — The gap between the bid and ask prices. A narrow spread (say, $0.58 to $0.60) indicates a liquid market with lots of trading activity. A wide spread ($0.40 to $0.65) signals thin trading and higher costs to enter or exit.
Binary contract — A “yes” or “no” contract that settles at exactly $1 if your position is correct or $0 if it isn’t. This is the most common contract type in prediction markets — there are only two possible outcomes.
Central limit order book (CLOB) — A system that matches buy and sell orders based on price and time priority. Most regulated prediction market platforms use a CLOB to ensure transparent, orderly trading.
Crowdsourced forecasting — The principle that aggregating many independent predictions often produces more accurate forecasts than individual expert opinions. Also called "wisdom of crowds."
Decentralized prediction market — A prediction market built on blockchain technology with no central authority controlling trades or payouts. Polymarket is the most prominent example. These platforms contrast with centralized, regulated platforms like Kalshi, which operate under government oversight.
Event — The real-world occurrence a prediction market is built around. One event (e.g. a rate change) might have several markets attached to it, covering different outcomes.
Event contract — The formal regulatory term for a prediction market contract. Regulators classify event contracts as derivatives. In Canada, the Canadian Investment Regulatory Organization (CIRO) uses this terminology in its regulatory framework.
Expected value (EV) — The probability-weighted average of all possible outcomes for a trade. For example, if you believe there's a 60% chance an event occurs and the contract costs $0.45, your expected value is positive: (0.60 x $1) - $0.45 = $0.15 per contract.
Hedging — Offsetting risk by taking a position opposite to one you already hold. A trader long on "yes" shares might buy some "no" shares as a hedge, reducing both upside and downside.
Implied probability — The probability suggested by a contract's current trading price. A contract trading at $0.72 implies a 72% chance the event will happen, according to the market's collective assessment.
Kalshi — A U.S.-based prediction market regulated by the Commodity Futures Trading Commission (CFTC). It was one of the first federally regulated event contract exchanges and primarily serves American traders.
Limit order — An order to buy or sell a contract at a specific price or better. Unlike a market order, a limit order won't execute until someone on the other side matches your price. This gives you more control but no guarantee of execution.
Liquidity — How easily contracts can be bought or sold without significantly affecting the price. High liquidity means narrow spreads, fast execution, and minimal slippage.
Long position — Holding "yes" shares in a market. You profit if the event occurs.
Market — The basic unit of a prediction market: a tradeable yes/no contract on a specific outcome. Prices, volume, and liquidity are tracked at this level.
Market calibration — The degree to which a market's implied probabilities match actual outcomes over time. A well-calibrated market means events priced at 70% actually occur roughly 70% of the time across many predictions.
Market maker — A participant who provides liquidity by continuously offering to both buy and sell contracts. Market makers profit from the bid-ask spread and play a critical role in keeping markets functional.
Market order — An order to buy or sell immediately at the current available price. Quick execution, but in thin markets you may experience slippage — paying more (or receiving less) than you expected.
Market resolution — The process of confirming an event's outcome and triggering payouts. Platforms designate a resolution source in advance — such as an official government announcement or a specific data release — so there's no ambiguity about who decides.
“No” shares — Shares that pay $1 if the event does not occur. Buying "no" shares is equivalent to taking a short position — you're taking a position that the event won't happen.
Order book — A real-time list of all open buy and sell orders for a given contract, organized by price. The order book shows you market depth — how many contracts are available at each price level.
Payout — The amount you receive when a contract settles in your favour. The standard payout is $1 per correct contract, minus any platform fees.
Polymarket — A popular decentralized prediction market operating on blockchain technology. In 2025, Ontario regulators banned Polymarket from the province for 2 years, ruling it was offering illegal binary contracts to Canadian residents.
Position — Your current holdings in a particular market — either long (holding "yes" shares) or short (holding "no" shares).
Resolution source — The authoritative source a platform designates in advance for determining an event's outcome. Examples include official government results, Statistics Canada data releases, or central bank announcements.
Series — A group of related events that recur over time, like monthly jobs reports or quarterly earnings releases. Each series contains multiple events, and each event contains one or more tradable markets.
Settlement source — The official reference a platform uses to determine an event's outcome and trigger payouts. Often used interchangeably with resolution source, though some platforms distinguish settlement (the payout step) from resolution (the outcome decision).
Short position — Holding "no" shares in a market. You profit if the event does not occur.
Slippage — The difference between the price you expected to pay and the price you actually paid when your order executed. Slippage is most common in low-liquidity markets where a large order can move the price.
Smart contract — Self-executing code on a blockchain that automatically processes transactions and distributes payouts when predefined conditions are met. Decentralized prediction markets rely on smart contracts instead of a central authority.
Volume — How many contracts have changed hands in a market, usually measured daily or since the market opened. It's one of the quickest ways to gauge how active and liquid a market is.
“Yes” shares — Shares that pay $1 if the event occurs. Buying "yes" shares is equivalent to taking a long position — you're taking a position that the event will happen.
