Prediction market

A market where contracts pay out based on whether a real-world event happens. A contract resolves to 1 if the event occurs and 0 if it does not, so its price behaves like a probability.

Implied probability

The probability the market is charging. A YES contract trading at 38 cents implies a 38% chance the event resolves YES. Fees and spread mean the true implied number is slightly wider than the mid price.

Fair value

Your own estimate of the probability, made independently of the quoted price. The whole point of research is to produce a fair value you trust more than the market's number.

Edge

Fair value minus the market price, in percentage points. A 27% fair value against a 38% quote is an 11-point edge on the NO side. Edge is theoretical until fees, spread and slippage are subtracted.

YES and NO sides

Every binary contract has two sides that sum to 100%. Buying NO at 62 cents is identical in exposure to selling YES at 38 cents.

Resolution criteria

The exact written rules that decide the outcome. Most surprising losses in prediction markets come from a trader being right about the world and wrong about the wording.

Resolution source

The specific authority the market defers to — an official agency, a named publication, an on-chain oracle. If the source is slow or ambiguous, the contract carries risk beyond the event itself.

Base rate

How often something like this has happened historically. Starting from the base rate and adjusting for what is specific to this case is the single most reliable way to avoid being talked into a story.

Calibration

Whether your stated probabilities match reality over many calls. If the things you call 70% happen about 70% of the time, you are calibrated — which matters far more than any individual win.

Brier score

A standard measure of forecast accuracy: the average squared difference between your probability and the actual outcome (0 or 1). Lower is better; 0.25 is what you get by always guessing 50%.

Spread

The gap between the best bid and the best ask. On thin prediction markets the spread frequently exceeds the edge, which is why volume matters when picking what to trade.

Liquidity and volume

How much size the book can absorb, and how much has actually traded. A large edge on a market with no volume is usually not a tradeable edge.

Slippage

The difference between the price you saw and the price you got. It grows with your size and shrinks with liquidity.

Correlation

When several positions depend on the same underlying outcome. Three politics contracts driven by one election result are one bet in three costumes, and sizing them independently is how accounts blow up.

Kelly criterion

A formula for position size given your edge and your bankroll. Most experienced traders use a fraction of full Kelly, because full Kelly assumes your probability estimate is exactly right.

Longshot bias

The persistent tendency for very unlikely outcomes to trade above their true probability, because small stakes for large payoffs are attractive regardless of value.

Time decay

As resolution approaches, uncertainty collapses and prices move towards 0 or 100. Being early and right can still be expensive if capital is locked up for months.

Paper trading

Recording positions without risking money, to test judgement and build a calibration record before capital is involved.