Prediction Market Terms: A Plain-English Glossary

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Last updated: June 2026

Prediction markets borrow words from both Wall Street and the betting world, which trips up newcomers. This glossary explains the terms you will actually run into, in plain English, grouped so you can find what you need fast. No jargon left undefined.

The basics

  • Prediction market. A place where you buy and sell contracts on whether a future event happens, with the price set by what traders are willing to pay.
  • Event contract. The thing you actually trade. A contract that pays out a fixed amount, normally one dollar, if a specific event happens, and nothing if it does not.
  • Yes share and No share. The two sides of a market. A Yes share pays out if the event happens, a No share pays out if it does not. You can buy either.
  • Settlement, also called resolution. The moment the event is decided and the market pays out. Winning shares become worth one dollar each, losing shares become worth nothing.
  • Price as probability. The single most useful idea here. A Yes share trading at 60 cents means the market thinks there is roughly a 60 percent chance, because that is what people will pay for a shot at a dollar.

Trading terms

  • Order book. The live list of buy and sell offers for a market. It shows the prices people are willing to trade at right now, like the order book on a stock exchange.
  • Liquidity. How easy it is to buy or sell without moving the price. A liquid market has lots of traders and tight prices. A thin market can be hard to get in and out of.
  • Spread. The gap between the best buy price and the best sell price. A wide spread means you pay more to trade, so it is a hidden cost worth checking.
  • Market maker. A trader or firm that posts both buy and sell offers to keep a market liquid, earning the spread for the service.
  • Position. What you currently hold. If you own 50 Yes shares, that is your position, and it gains or loses value as the price moves.
  • Selling out. Closing your position before the event settles, by selling your shares back into the market, to lock in a profit or cut a loss.

Money and settlement

  • Stake. The money you put into a trade, which is the cost of the shares you buy. The most you can lose on a share is what you paid for it.
  • Payout. What a winning share is worth at settlement, normally one dollar each.
  • Fees. What the platform charges to trade or withdraw. Small per trade, but they add up and eat into returns over time.
  • Segregated funds. Customer money held separately from the company’s own cash, so it cannot be spent running the business. A core protection on regulated platforms.
  • CFTC. The Commodity Futures Trading Commission, the US federal agency that regulates prediction markets as derivatives. See our CFTC regulation guide.
  • Designated contract market, or DCM. The CFTC license a US exchange needs to list contracts legally. Both Kalshi and Polymarket’s US arm operate as DCMs.
  • Derivative. A financial contract whose value depends on something else, like a futures contract. Event contracts are classed as derivatives, which is why the CFTC regulates them.
  • KYC. Know your customer, the identity checks a regulated platform must run before you can trade, including a government ID.
  • Federal preemption. The legal idea that exclusive federal authority can override conflicting state law. It is the heart of the fight over whether states can ban these markets. See our legality guide.

Missing a term you have seen? Email editorial@chipreign.com and we will add it.

Frequently asked questions

What is an event contract?

An event contract is the thing you trade on a prediction market. It pays a fixed amount, normally one dollar, if a specific event happens, and nothing if it does not. It is classed as a derivative, which is why the CFTC regulates these markets.

What does the price of a contract mean?

The price, in cents, is the market’s estimate of the odds. A Yes share at 40 cents means the market sees about a 40 percent chance, since that is what traders will pay for a shot at a one-dollar payout. The price moves as opinion changes.

What is liquidity in a prediction market?

Liquidity is how easily you can buy or sell without moving the price. Busy markets are liquid, with tight prices and quick fills. Thin markets can be hard to enter or exit at a fair price, so liquidity is worth checking before you trade.

What does it mean to settle or resolve?

Settlement, or resolution, is when the event is decided and the market pays out. Winning shares become worth one dollar each and losing shares become worthless. Until then, you can usually trade your shares at the going price.

What is a designated contract market?

It is the CFTC license a US exchange needs to list contracts legally, the same category as major futures exchanges. Kalshi and Polymarket’s US arm both hold it, which is what makes them regulated rather than offshore.

Responsible play. Prediction markets are real-money risk, for adults only, 18 and over, or 21 and over where local law requires. This page is general information, not financial advice. If it stops being fun or you are chasing losses, step away. In the US call or text the National Problem Gambling Helpline at 1-800-MY-RESET. In the UK, GamCare is on 0808 8020 133. In Australia, Gambling Help Online is on 1800 858 858.