Prediction market terms, defined

The market 'Will the Fed cut rates in March?' has Yes shares at $0.35. At that price the crowd sees a 35% chance of a cut.

The market 'Will BTC hit $100K by June?' trades Yes at $0.72. The crowd thinks there's a 72% chance it happens. If it does, your $0.72 share pays $1. If not, you lose $0.72.

You buy 100 Yes tokens at $0.60 each for $60. The event occurs: each token redeems for $1, giving you $100 back. Your profit: $40.

Yes shares in 'Will ETH hit $5K?' trade at $0.45. You buy 200 shares for $90. If ETH hits $5K, you collect $200, a $110 profit. If not, you lose $90.

A market prices Yes at $0.82 but you think the real probability is 60%. You buy No at $0.18. If the market resolves No, each $0.18 share pays $1, a 456% return.

The Fed announces no rate cut. The oracle proposes 'No' resolution. After a 2-hour challenge window with no dispute, the market finalizes. No shares pay $1, Yes shares go to $0.

A liquid election market has $500K on the book with a $0.01 spread. You can buy 10,000 shares without moving the price. A niche market with $2K on the book might move $0.05 on the same order.

Three buyers bid $0.62, $0.63, and $0.64. Two sellers ask $0.65 and $0.66. A new seller offers $0.64, and the CLOB matches that order with the $0.64 bid at once.

You place a limit buy at $0.55 for 500 shares. The market trades at $0.58 for hours, then dips. Your order fills at $0.55. You got the exact price you wanted.

Breaking news drops. You market-buy 1,000 Yes shares. The first 500 fill at $0.65, the next 300 at $0.66, and the last 200 at $0.68. Average price: $0.659.

You expect to buy at $0.70 but your 5,000-share order eats through the book up to $0.73. Your average fill is $0.715. That $0.015 difference is slippage, costing you $75.

You buy an event contract 'Will CPI exceed 3.5%?' at $0.40. If January's CPI comes in at 3.7%, your contract settles at $1. You net $0.60.

A bot posts bids at $0.64 and asks at $0.66 across 50 markets. Each round-trip earns $0.02. With 500 fills per day, that's $10/day per market: $500/day across the portfolio.

Yes at $0.72, No at $0.29. The implied probability sits between 71% and 72% (since 1 − 0.29 = 0.71). The midpoint estimate: a 71.5% chance the event occurs.

Best bid: $0.64. Best ask: $0.66. The spread is $0.02. You buy at $0.66 and immediately sell at $0.64. That $0.02 is the cost of a round-trip trade.

You hold 2,000 Yes shares bought at an average of $0.55. Your position size is $1,100 (cost basis). If the market resolves Yes, you receive $2,000, a $900 gain.

The book shows $12K in bids from $0.60 to $0.64 and $8K in asks from $0.66 to $0.70. Nothing rests at $0.65. The bid side is deeper, so more buying interest sits on the book.

A major election market shows 50,000 shares at each penny from $0.60 to $0.70 on the ask side: deep liquidity. A niche sports market shows only 500 shares at $0.55 and nothing until $0.62. That shallow depth means your 2,000-share order would jump the price by $0.07.

A new market opens on an FDA drug approval decision. Initially priced at $0.50 (no information), it drifts to $0.72 over two days as biotech analysts, industry insiders, and informed traders submit orders reflecting their views. That $0.72 is the market's discovered price.

A niche science market has only $3,000 in total order book depth and a $0.08 spread. You spot what looks like a 15-cent mispricing, but buying $1,000 worth of shares would push the price up by $0.06, cutting your edge nearly in half before you even have a position.

You buy Yes at $0.45 with a target of $0.70 and a stop-loss at $0.35. The price hits $0.68 after positive news. Your exit strategy says to sell half at $0.65+ and hold the rest to resolution. You lock in profit on 500 shares and let 500 ride.

The monthly CPI report comes in at 3.2%. The market 'CPI above 3%' settles Yes. On Polymarket, a proposer submits Yes to the oracle, and once the challenge period passes with no dispute, each Yes share redeems for $1 in pUSD.

You want to buy 1,000 Yes shares. A limit order at $0.62 waits until someone sells at that price: you control the price but not the timing. A market order takes whatever the ask is, and only as many shares as the book holds: you control the timing but not the price.

Best bid: $0.63. Best ask: $0.65. Spread: $0.02. If you buy at the ask and sell at the bid immediately, you lose $0.02 per share. That's the round-trip cost of the spread.

A presidential election market has 2 million shares of open interest: $2M in total capital committed across all traders. Daily volume might be 200K shares, but the 2M figure tells you the total amount at stake in the market.

Two weeks before an election, the market swings between $0.55 and $0.65 a day as polls are released: high volatility. The morning after a decisive result, it jumps to $0.98 and stays there. Volatility collapses as uncertainty resolves.

You bought 1,000 Yes shares at $0.45 for $450. The current market price is $0.62. Your unrealized P&L is ($0.62 - $0.45) x 1,000 = +$170. If the price drops to $0.50 before resolution, your unrealized P&L shrinks to +$50.

Three purchases: 200 shares at $0.40, 300 shares at $0.45, 500 shares at $0.50. Total cost basis: (200 x $0.40) + (300 x $0.45) + (500 x $0.50) = $80 + $135 + $250 = $465. Average cost per share: $0.465.

A three-candidate Polymarket market asks $0.41, $0.30 and $0.23 for Yes. One Yes share of each costs $0.94 and pays $1 whichever candidate wins: $0.06 a set, before fees.

A trader places 20 limit buys of 250 shares each, starting at $0.40, over 3 days. They accumulate 5,000 shares at an average of $0.41, without pushing the price past $0.43.

You estimate a 70% chance of an event, but Yes trades at $0.52. You buy 1,000 shares at $0.52: if your 70% is right, expected profit is $180 (0.70 × $480 − 0.30 × $520).

You hold $5K in 'Candidate A wins primary' Yes shares. You hedge by buying $2K of 'Candidate A wins general' No shares. If A loses the primary, your hedge partially offsets the loss.

A bot buys 100 shares at the $0.66 ask and sells them into the bid at $0.68: $2 before costs. On a fee-enabled crypto market whose current fee schedule reports feeRate 0.07, the taker fee on each side is fee = C × feeRate × p × (1 - p), where C is shares and p is price. The buy and the sell together pay about $3.09, more than the $2 the move made. Fees are set per market and can change, so check that market's current fee parameters. A move to $0.64 instead loses $2 before fees.

'Party A wins House' at $0.55 and 'Party A wins Senate' at $0.48. You go long House, short Senate. If the 7¢ gap narrows to 2¢, you profit $0.05/share regardless of who wins.

You estimate a 65% probability and the share price is $0.50 (b=1). f = (1 × 0.65 − 0.35) / 1 = 0.30, so Kelly says stake 30% of your bankroll. Half-Kelly is 15%: $1,500 on a $10K account.

With a $20K account and 5% max risk, you risk $1,000 per trade. At a $0.60 entry, you buy 1,667 shares. If you lose, you're down 5%. If you win, you gain $667 (3.3%).

A political market drops from $0.65 to $0.40 after a candidate's gaffe goes viral. You assess the gaffe's actual impact on voter behavior, determine $0.55 is fair value, and buy Yes at $0.42. Over the next week, the price recovers to $0.58 as the news cycle moves on.

An election market has been steadily climbing from $0.45 to $0.55 over a week as a string of favorable polls comes in. You buy Yes at $0.55, expecting the momentum to continue. Two more polls confirm the trend and the price reaches $0.63. You exit with a $0.08 profit per share.

The jobs report is scheduled for 8:30am ET. You have a framework for interpreting the data and pre-written scenarios. The number comes in 50K above expectations. Within 90 seconds, you buy Yes in 'Fed holds rates' before the market fully adjusts. The price moves $0.06 in your favor over the next hour.

'Party X wins Senate' at $0.55 and 'Party X wins House' at $0.62. Historically, when one is above $0.55, the other follows within $0.04. You buy Senate Yes at $0.55 and sell House Yes at $0.62, expecting the gap to close. It narrows to $0.03, and you profit as the gap closes.

Candidate A's nomination market trades at $0.48 and Candidate B's at $0.42. You believe A is overpriced relative to B, so you sell A's Yes and buy B's Yes. If A drops to $0.44 and B rises to $0.46, you profit $0.08 total regardless of who wins.

A crypto market spikes from $0.50 to $0.78 on a viral tweet. You analyze the underlying data and estimate fair value at $0.60. You sell Yes (or buy No) at $0.76. Over the next three days, the hype fades and the price falls back to $0.58. Your fade netted $0.18 per share.

A market oscillates between $0.48 and $0.56. You set buy orders at $0.48, $0.50, $0.52 and sell orders at $0.52, $0.54, $0.56. Each round trip earns $0.02 a share. Over a week of oscillation, the grid executes 30 times for a cumulative profit of $600.

Everyone on social media insists a candidate will win. The market is at $0.85. You analyze the data, see structural weaknesses in the candidate's position, and buy No at $0.15. When the candidate loses, each $0.15 share pays $1, a 567% return.

The Supreme Court will announce a ruling next Tuesday. You study the oral arguments, assess a 60% probability the ruling favors outcome A, and note the market prices it at 45%. You buy Yes at $0.45 and hold through the announcement. The ruling comes in as expected. The market jumps to $0.85, and you take profit.

You buy Yes at 52 cents and the market closes at 61 cents. Closing line value is (0.61 / 0.52 - 1) * 100 = +17.3%. The event can still resolve No, and the price was still the better side of the trade.

Trader A averages +$720 per resolved position with a standard deviation of $400: Sharpe = 720 / 400 = 1.8. Trader B averages the same +$720 with a standard deviation of $2,000: Sharpe = 720 / 2,000 = 0.36. Trader B earns the same average with five times the swings.

A trader's returns: +$800, +$1,200, −$200, +$600, −$100. Only the two losses, $200 and $100, enter the downside deviation, so the large wins do not count as risk.

Across 50 resolved trades: $12,000 in total wins, $5,000 in total losses. Profit factor = 12000 / 5000 = 2.4. For every dollar lost, this trader earned $2.40.

P&L peaks at $8,400 on March 10, then drops to $5,600 by March 20 before recovering. Max drawdown = $8,400 − $5,600 = $2,800 (33% of peak).

A trader wins 36 of 60 resolved markets: a 60% win rate. Average win: +$320. Average loss: −$180. Net: (36 × $320) − (24 × $180) = $7,200 profit, a result that needs both the win rate and the win and loss sizes.

You spent $4,200 across 15 markets, and resolutions paid back $6,800: realized P&L of +$2,600. You also hold 3 open positions worth $1,100 today. Their value minus what you paid for them is your unrealized P&L.

Your portfolio's 95% daily VaR is $1,200. On 95 of 100 trading days, you lose less than $1,200. On the worst 5 days, losses exceed $1,200 by an amount VaR does not tell you.

Annualized return: $18,000. Max drawdown: $6,000. Calmar = 18000 / 6000 = 3.0. For every dollar of max drawdown, this trader made $3 a year.

The average active trader lost 3% last month and you gained 12%. Your alpha: +15 percentage points above the benchmark.

The market says 55% (Yes at $0.55). Your model says 70%. Edge = 70% − 55% = 15 points. On 1,000 shares, expected profit ≈ $150. That's a trade worth making.

Buy Yes at $0.40, you estimate 55% probability. EV = (0.55 × $0.60) − (0.45 × $0.40) = $0.33 − $0.18 = +$0.15 per share. Positive EV: take the trade.

Trader A: +$500, +$400, +$600, +$300, +$500 across 5 months. Trader B: −$800, +$3,200, −$500, +$100, +$300. Same total profit, but A is far more consistent.

The average trader earns 2% per month. You earn 6% with a tracking error of 3%. Information ratio = (6 - 2) / 3 = 1.33: for every unit of deviation from the average, you earned 1.33 percentage points of excess return.

You returned 15% while the risk-free rate was 4%. Your beta to the overall prediction market is 0.8. Treynor = (15 - 4) / 0.8 = 13.75. Compare that to a market-following trader with 12% return and beta of 1.2: Treynor = (12 - 4) / 1.2 = 6.67. Your skill-adjusted performance is over twice as strong.

Your P&L peaked at $12,000 on January 15, then dropped to $9,500 by February 1. By February 20, you were back to $12,100. Recovery time: 36 days. A trader who peaked at $12,000 in January but was still at $10,000 in May has a recovery time exceeding 120 days, a concerning sign.

During a period when the average prediction market trader earned 8%, you earned 5% with a beta of 0.3. When the average trader lost 6% the next month, you lost only 1.5%. Your low beta means your performance is largely independent of the crowd.

Trader A: +40% return, 30% max drawdown, Sharpe 1.2. Trader B: +25% return, 8% max drawdown, Sharpe 2.5. Raw return favors A; risk-adjusted return favors B. Sized to the same risk, B earns more.

Win rate: 55%. Average win: $420. Average loss: $350. Expectancy = (0.55 x $420) - (0.45 x $350) = $231 - $157.50 = +$73.50 per trade. Over 200 trades, that is $14,700 in expected profit.

Trader A trades $100K in volume and generates $8K in profit (8% capital efficiency). Trader B trades $500K and generates $15K in profit (3% capital efficiency). Despite B's higher raw profit, A made more per dollar traded.

You predicted 70% for an event that occurred, 30% for one that did not, and 80% for one that did. Brier = [(0.7-1)^2 + (0.3-0)^2 + (0.8-1)^2] / 3 = [0.09 + 0.09 + 0.04] / 3 = 0.073. That is a strong score.

You deployed $5,000 across 20 markets. Resolutions returned $6,500. ROI = ($6,500 - $5,000) / $5,000 = 30%. But if those 20 markets took 6 months to resolve, your annualized ROI is roughly 60%, much more informative than the raw number.

A trader's cumulative P&L shows +$12,000. The daily P&L chart shows that $9,000 of that came from a single day when a major political market resolved in their favor. The remaining 29 days averaged +$100/day. Daily P&L shows a concentration the cumulative total hides.

Polymarket's 2024 US presidential election event traded $3.69 billion across its candidate markets. $1.53 billion of that was on one market: will Donald Trump win?

You split $100 of pUSD through the CTF contract and receive 100 Yes + 100 No tokens. You sell 100 No tokens at $0.35 ($35), keeping 100 Yes tokens at a net cost of $65.

You wrap 1,000 USDC.e into 1,000 pUSD, or use Polymarket's deposit flow to convert another supported asset first. That buys 1,538 Yes shares at $0.65 each. If you win, the shares pay 1,538 pUSD, which the Collateral Offramp unwraps as USDC.e.

On an AMM, buying 10,000 shares might move the price 3%. On Polymarket's CLOB, the same trade fills across resting limit orders with $0.01 to $0.02 of price impact.

An election market concludes. A proposer submits 'Yes' as the outcome and posts a bond. The 2-hour challenge window passes with no disputes. The oracle finalizes 'Yes': winning shareholders receive $1 per share. If someone had disputed, UMA token holders would have voted on the outcome.

In 2022, the CFTC fined Polymarket $1.4M for operating an unregistered exchange. Its route back to US customers in 2025 was buying QCEX, an exchange that already held a DCM license.

In 2023 the CFTC blocked a regulated exchange from listing contracts on control of the US Congress. The exchange sued, and in 2024 a federal court ruled for it, which opened US election contracts to regulated exchanges.

A DCM must file daily trading reports, watch for manipulation, and segregate customer funds. Segregation keeps your balance apart from the exchange's own money, which matters most if the exchange fails.

Polymarket's US app runs full KYC: you verify your identity with government ID before your first trade. On Polymarket's global platform, outside the US, you connect a wallet and start trading with no ID check.

A user deposits $50K and immediately buys Yes shares in a low-volume market at above-market prices. AML systems flag this as potential wash trading or layering. The platform investigates before allowing withdrawals.

A binary option: 'Will oil close above $80 today?' Pay $0.45, receive $1 if yes. Structurally identical to a prediction market share. The regulatory treatment depends on the platform's license.

US: legal on CFTC-regulated exchanges, Polymarket's US app among them. Great Britain: the Gambling Commission generally treats current prediction-market products as betting exchanges needing its betting intermediary licence, subject to the specific business model; spread betting is regulated by the FCA. EU: varies by member state. Most of Asia: no specific framework. Each jurisdiction treats the same product differently.

When a regulated exchange asked to list contracts on control of the US Congress, the CFTC had to decide whether they served a legitimate economic purpose. The court fight that followed set precedents for every prediction market that serves US customers.

Polymarket's outcome tokens could be classified as securities if regulators argued they represent investments with profit expectations. The platform structures them as conditional tokens that pay $0 or $1 based on events, closer to a wager than an investment, to stay outside securities classification.

A research market runs under a no-action letter that caps each position at $850. When the regulator moves to withdraw the letter, the operator has to wind the market down, win in court, or get a full license. A DCM designation does not lapse that way.

A US-based trader reaches Polymarket through its US-regulated app and passes full KYC first. A trader outside the US can connect a crypto wallet to Polymarket's global platform in minutes with no ID.

A user makes 50 deposits of $9,900 each, just under the $10,000 reporting threshold, and spreads them across low-liquidity markets. AML systems flag this as structuring, a red flag for money laundering, which triggers a platform investigation and a possible suspicious activity report.

A trader controls three wallets and buys Yes shares from one wallet while selling from another, generating $100K in fake volume. On-chain analysis reveals that all three wallets were funded from the same source and always trade with each other, classic wash trading.

A trader places a $500,000 bid at $0.70 to create the appearance of strong buying interest, causing other traders to buy. Once the price rises to $0.75, the trader cancels the $500K bid and sells at the inflated price. This is spoofing, a form of market manipulation.

You switch the report to daily. Each morning at 8am UTC it lists the previous day's 5 largest trades, each with the trader, the market, the position and price, and the dollar size, then counts the rest.

You notice a trader with an S grade and steady profits in crypto markets and follow them. Their open positions now refresh on a rotation of about an hour, and your watchlist shows their latest P&L and win rate without a search.

On the Crypto page you see up to 25 wallets ordered by that conservative lower bound. A wallet can rank strongly in Crypto and not appear in Politics, because each category counts only its own independent resolved events.