Prediction Marketplace Glossary
Prediction markets aren’t just platforms for placing bets. Today, they have become the go-to platforms for wagering on a wide range of events about what’s likely to happen in the future.
From business decisions to political forecasts, prediction markets let participants trade contracts tied to real-world events. However, before you can build prediction marketplace software, it’s better to understand the terminologies and core concepts of the marketplace.
This glossary will guide you through the key concepts and help you make sense of both centralized and decentralized prediction markets.
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What are Prediction Markets or Prediction Marketplaces?
At their core, prediction markets are marketplaces where people buy and sell contracts representing the outcome of future events. Each contract corresponds to a specific outcome, like “Will Team A win the championship?” or “Will inflation exceed 4% this year?”
Traders purchase shares in the outcomes they believe will happen. Unlike what people think, prices in these individual markets are not set arbitrarily. If a share costs $0.70, the market implies a 70% chance of that outcome. When the event concludes, the market resolves, and winners receive payouts according to the final outcome.
In itself, prediction markets are versatile, and you can build dedicated marketplaces to create a wagering economy to forecast sales, political analysts gauge election results, and decentralized platforms allow anyone with a cryptocurrency wallet to participate. They provide both insight and liquidity, turning speculation into actionable intelligence.
What is the Difference between Decentralized and Centralized Prediction Market Software?
Prediction markets don’t all operate the same way. Understanding the difference between centralized and decentralized prediction markets helps you see why some terms are specific to each type and how trading, liquidity, and settlement differ.
| Centralized Markets | Feature | Decentralized Markets |
| A single entity runs the platform | Operator | No central authority; governed by smart contracts |
| Often regulated; users must comply with KYC/AML | Regulation | Mostly permissionless; users self-custody funds |
| Fiat currency | Currency | Crypto or platform tokens |
| Provided by the platform or institutional participants | Liquidity | Supplied by automated market makers or pooled funds |
| Internal order books | Order System | AMM or smart contract-based trading |
| Managed by the platform; payouts in fiat | Settlement | Automated on-chain by smart contracts using oracles |
| May have geographic or regulatory restrictions | Access | Open globally to anyone with a compatible wallet |
| Kalshi, PredictIt | Examples | Polymarket, Augur |
Prediction Market Core Terms and Terminologies
A | ||
| Arbitrage | It’s the practice of exploiting price differences between markets or positions to make a risk-free profit. In prediction markets, traders can balance outcomes to lock in returns when probabilities differ across markets. | |
| Asset-Backed Market | A market where the value of contracts is attached to an underlying asset, like a stock, commodity, or token, and the volume of each market depends on the asset. | |
| Automated Market Maker (AMM) | A system that allows continuous trading without a traditional order book. Prices adjust automatically based on the ratio of assets in a liquidity pool. | |
B | ||
| Binary Market | It’s a market with two possible outcomes, usually yes or no. Traders buy shares representing each outcome, and one pays out fully if it happens. | |
| Book Value | The current market price of shares in a prediction market. | |
| Buy-In | The amount of money or tokens required to enter a market or participate in a wager. The buy-in amount depends on the number of people participating in the market. | |
C | ||
| Categorical Market | A market with multiple distinct outcomes instead of just yes or no. For example, predicting which team will win a league. | |
| Collateral | Assets or funds held to back trades and ensure payouts, and this collateral also protects the market from default. | |
| Contract (Prediction Contract) | A digital agreement that represents a bet on an event’s outcome. It defines the conditions, payout, and resolution rules. | |
D | ||
| Decision Market | A market designed to forecast an outcome that can inform real-world decisions. | |
| Dispute Period | A window of time after a market closes where participants can challenge the reported outcome. | |
| Dividend | The payout is received by holders of winning shares once the market resolves. | |
E | ||
| Event Contract | A contract created for a specific event with clearly defined outcomes, ideally in binary form with a Yes or No response. | |
| Expected Value | The average payoff a trader can anticipate from a position based on probabilities and market prices. | |
| Expiration (Market End Date) | The date and time when trading ends and the market moves toward resolution and paying the winners with the right answers. | |
F | ||
| Forecast Accuracy | A measure of how closely market predictions align with actual outcomes set in the market by the users or the operator. | |
| Futures Market | A market where contracts settle at a future date, often used to predict trends rather than immediate events. | |
H | ||
| Hedging | Taking positions that reduce potential losses from other trades or exposures in the market to ensure the trader remains in profit. | |
I | ||
| Implied Probability | The probability of an outcome derived from market prices. For example, if a share costs $0.70, the market implies a 70 percent chance of that outcome. | |
| In-Play Market | A market where trading continues while the event is ongoing, allowing dynamic price adjustments as new information emerges. | |
L | ||
| Liquidity | The ease with which shares can be bought or sold without significantly changing the price. Higher liquidity means smoother trading. | |
| Long Position | A bet that a specific outcome will happen while ensuring the trader’s profit if the outcome occurs. | |
M | ||
| Market Maker | An entity or mechanism that provides liquidity by continuously offering to buy and sell shares, ensuring traders can enter or exit positions. | |
| Market Resolution | The process of determining which outcome actually occurred and settling the corresponding payouts. | |
Market Spread | The difference between the price to buy a share and the price to sell it. A smaller spread indicates better liquidity. | |
| Market Volume | The total number of shares traded within a specific period. | |
O | ||
| Odds | A numerical representation of the probability of an event, often implied by market prices. Multiple odds providers are integrated into prediction markets for better accuracy. | |
| Open Interest | The total number of outstanding shares or contracts that have not yet been settled. | |
Outcome (Event Outcome) | The actual result of the event being predicted or resulting in the outcome that everyone speculated would happen. | |
| Outcome Shares | The units traders buy represent a particular outcome in a market. | |
P | ||
| Parimutuel Market | A market where all bets are pooled and winners share the total pool after fees. | |
| Payout | The amount a winning share or contract pays once the market is resolved. | |
Prediction Market | A platform where participants trade contracts based on the probability of future events. | |
| Price Discovery | The process through which market prices reflect the collective expectations of participants. | |
R | ||
| Resolution Source | The authority or system used to determine the final outcome of a market, like an oracle or trusted organization. | |
| Return on Investment (ROI) | The gain or loss made on a trade relative to the amount invested. | |
| Risk Management | Strategies and rules to limit potential losses in trading. | |
S | ||
| Scalar Market | A market where the outcome is a number within a defined range instead of discrete categories. | |
| Settlement | The process of completing a trade and transferring payouts to winning positions according to their shares. | |
| Short Position | A bet that a specific outcome will not occur. Traders profit if the outcome fails. | |
| Spread | The difference between buying and selling prices indicates market liquidity and efficiency. | |
| Stake | The amount of capital a trader commits to a position. | |
T | ||
| Trading Fee | A fee is charged for executing trades in the market, and it depends on the prediction market platform to set the fees. | |
| Trade Volume | The total amount of trading activity in a market over a period. | |
U | ||
| Uncertainty | A measure of how unpredictable an event’s outcome is. Markets with high uncertainty often have more volatile prices. | |
V | ||
| Volatility | The degree of variation in market prices over time reflects uncertainty or rapid changes in expectations. | |
Centralized Prediction Market
A | ||
| Account Verification | The process of confirming a user’s identity before allowing them to trade. | |
| AML Compliance (Anti-Money Laundering) | Rules and procedures are designed to prevent illegal money from entering or moving through the platform. | |
| API Access | A way for developers or institutional users to connect their systems directly to the platform for trading or data retrieval. | |
B | ||
| Bid-Ask Spread | The difference between the highest price a buyer is willing to pay and the lowest price a seller is asking. | |
| Brokerage Fee | A fee charged by the platform or broker for facilitating trades. | |
C | ||
| Clearinghouse | An entity that ensures trades are properly settled and funds or contracts are transferred accurately. | |
| CFTC (Commodity Futures Trading Commission) | The U.S. regulatory body that oversees futures and certain types of prediction markets. | |
| Custodianship | The process of safely holding and managing users’ funds or assets on the platform. | |
D | ||
| Deposit | The amount of money a user must add to their account to start trading. | |
| Derivatives Contract | A financial contract whose value is based on the outcome of an event, such as a prediction market contract. | |
F | ||
| Fiat Settlement | Payouts or trade settlements are conducted in traditional government-issued currency. | |
| Financial Regulator | An authority that enforces laws and rules for financial markets and platforms. | |
K | ||
| KYC (Know Your Customer) | The process of collecting information about users to verify their identity and comply with regulations. | |
M | ||
| Market Surveillance | The ongoing monitoring of trades to detect irregularities, manipulation, or suspicious activity. | |
| Market Rules | The official guidelines that govern how trading, resolution, and payouts occur. | |
O | ||
| Order Book | A system that lists all buy and sell orders for a contract, allowing participants to see market depth. | |
| OTC Trading (Over-the-Counter) | Trading that occurs directly between two parties rather than on a public platform. | |
P | ||
| Platform Fees | Charges collected by the platform for executing trades or maintaining the market. | |
Position Limit | The maximum exposure or number of contracts a trader can hold in a market. | |
| Payout Schedule | The timetable and method for distributing winnings after a market resolves. | |
R | ||
| Regulatory Reporting | The process of submitting trading and user activity information to comply with financial regulations. | |
Risk Limit | A restriction on how much risk a user can take in a market. | |
| Retail Investor Restrictions | Rules that limit access or trading options for non-professional traders. | |
S | ||
| Settlement Date | The date when trades are finalized and payouts are delivered. | |
Slippage | The difference between the expected price of a trade and the actual execution price. | |
| Stop-Loss Order | An order to automatically exit a position if the price moves against the trader beyond a set threshold. | |
T | ||
| Trading Desk | A team or interface that manages and executes trades on behalf of the platform or large clients. | |
| Trade Confirmation | A notification that a trade has been successfully executed. | |
U | ||
| User Account Tier | Levels of accounts with different privileges, limits, or verification requirements. | |
| Unauthorized Trading Restrictions | Rules preventing certain types of trades by specific users or regions. | |
Decentralized Prediction Market
A | ||
| Arbitrage Bot | An automated program that identifies price differences across markets to execute profitable trades. | |
B | ||
| Blockchain | A distributed ledger technology that records all transactions securely and transparently. | |
| Bridge (Cross-chain Liquidity) | A mechanism allowing assets or contracts to move between different blockchain networks. | |
C | ||
| Collateral Token | A digital asset held as security to back trades and ensure payouts. | |
| Crypto Wallet | A software or hardware tool used to store and manage digital assets for trading. | |
| Consensus Mechanism | The process by which a blockchain network agrees on the validity of transactions. | |
| Conditional Token | A token that represents a specific outcome in a prediction market. | |
D | ||
| Decentralized Oracle | A system that supplies external data to smart contracts to determine market outcomes. | |
DEX (Decentralized Exchange) | A platform that allows peer-to-peer trading of tokens without a central operator. | |
| Dispute Resolution Protocol | A method for resolving disagreements over market outcomes using rules embedded in smart contracts or governance systems. | |
F | ||
| Fee-on-Trade | A small protocol fee is charged automatically for each trade executed on a decentralized market. | |
G | ||
| Gas Fee | A payment required to execute transactions or smart contracts on a blockchain. | |
| Governance Token | A token that gives holders the right to vote on changes or upgrades to the platform. | |
M | ||
| Market Contract | A smart contract that defines a market, including outcomes, rules, and payouts. | |
Market Resolution Smart Contract | A contract that automatically calculates and distributes payouts once an event is resolved. | |
| Margin | Collateral is required to open a leveraged position or ensure trade security. | |
O | ||
| On-Chain Settlement | Payouts and trade finalization are executed automatically on the blockchain. | |
P | ||
| Permissionless Trading | Trading that does not require approval from a central authority. | |
| Prediction Token | A token representing a position in a prediction market outcome. | |
R | ||
| Reputation System | A system that tracks the reliability of users or oracles in reporting outcomes. | |
| Risk Pool | A collective fund used to back trades or cover losses in decentralized markets. | |
S | ||
| Smart Contract | A self-executing contract on a blockchain that enforces rules automatically. | |
Stake Token | A token used to participate in governance, liquidity provision, or dispute resolution. | |
| Synthetic Asset | A token that mimics the value of a real-world asset or market outcome. | |
T | ||
| Tokenomics | The economic design of a platform’s tokens, including distribution, incentives, and utility. | |
| Trade Routing | The process of automatically directing trades through the most efficient liquidity paths on-chain. | |
U | ||
| User Wallet | A blockchain wallet is used to interact with decentralized markets. | |
| Uniswap-Style AMM | A specific type of automated market maker that uses a constant product formula for pricing and liquidity. | |
V | ||
| Validator | A participant who confirms transactions and enforces rules on a blockchain network. | |
| Volatility Index Token | A token that represents the market’s expectation of future volatility for an event or asset. | |
A prediction market is a platform where people trade contracts tied to future events. Each contract corresponds to an outcome as traders buy “shares” of the outcome they believe will happen. When the event resolves, those who held the correct shares receive a payout. Prices in the market reflect collective belief about how likely each outcome is.
Centralized markets are run by a single organization, often regulated, using fiat currency, and with KYC/AML rules. Decentralized markets use blockchain or smart contracts. They are permissionless, rely on tokens or crypto, use oracles to determine outcomes, and often allow global participation without needing traditional identity checks.
In centralized platforms, the operator handles settlement, and players who have won contracts pay out in fiat, often after manual or semi-automated checks. In decentralized platforms, smart contracts usually handle settlement automatically using oracles to confirm the result, with payout in crypto or tokens.
Liquidity is how easily you can buy or sell a contract without dramatically changing its price. Higher liquidity means more efficient, stable markets. Low liquidity means you might pay more or sell at less favorable prices (slippage).
Prediction markets may charge fees for placing trades, for payouts, for withdrawals, or for providing liquidity. Centralized platforms might have fixed brokerage or platform fees, and on the other hand, decentralized ones often charge protocol fees or gas fees.
An oracle is a trusted data feed that provides real-world information (like election results, sports outcomes, and financial indexes) to a smart contract. It resolves markets by supplying outcome data. If an oracle fails or gives wrong data, the resolution and payout may be compromised.
The legality of prediction markets depends on the country. In the U.S., markets like Kalshi operate under CFTC approval, while others like PredictIt have faced regulatory challenges. In decentralized markets, legality is less clear since they operate on a blockchain without a central operator.
By using transparent smart contracts, distributed oracles, and community-driven dispute resolution. While manipulation is still possible in low-liquidity markets, open visibility of trades makes it harder to hide bad behavior compared to centralized systems.
Tokens can represent positions in an outcome (e.g., Yes/No shares), collateral for liquidity pools, or governance rights. Some platforms issue specialized tokens to reward participation or manage protocol decisions.
Prediction markets are structured financial contracts tied to measurable outcomes, often regulated as derivatives. Sports betting is gambling regulated under gaming laws. The line can blur, but prediction markets usually serve broader purposes like forecasting elections, economics, or weather.
They eliminate reliance on a central authority but carry risks like smart contract bugs, oracle failures, and volatile crypto assets. Security depends on code audits and community trust.