This page is your quick reference for the vocabulary you will see across prediction markets, from beginner basics to advanced mechanics.
Event, Market, and Contract
- Event: the real-world outcome you care about (election result, rate cut, product launch)
- Market: the trading venue for an event question
- Contract (or share): what you trade, tied to a specific outcome
Yes/No Shares and Payout
In a binary market:
- Yes share pays $1 if the event happens, $0 if not
- No share pays $1 if the event does not happen, $0 if it does
Implied Probability
A rough rule of thumb for a $1 payout contract:
- Price equals implied probability
Example: $0.62 implies about 62%
This ignores fees, spreads, and liquidity effects.
Liquidity and Slippage
- Liquidity: how easy it is to trade without moving the price much
- Slippage: the difference between the price you expect and the price you get, often caused by low liquidity
Spread
The bid-ask spread is the gap between:
- Bid: highest price someone will pay
- Ask: lowest price someone will sell for
Tighter spreads usually mean a healthier market.
Volume and Open Interest
- Volume: how much has traded in a period
- Open interest: how many shares are currently outstanding (active positions)
Fees
Platforms may charge fees on:
- Trades
- Net winnings
- Withdrawals
Fees affect real profitability, especially for high-frequency strategies.
Key Takeaways
- Learn the vocabulary first, it removes 80% of confusion.
- Liquidity, spread, and fees determine how tradable a market really is.
- Implied probability is a signal, not a truth.