Prediction Market
Glossary

A prediction market contract that resolves to exactly $1.00 (YES wins) or $0.00 (NO wins). No partial resolution — the outcome is binary. Most Kalshi and Polymarket contracts are binary.

The probability of an outcome implied by the contract's current market price. A YES contract trading at $0.65 implies a 65% market consensus probability of the event occurring. Also called "market-implied probability."

Commodity Futures Trading Commission Designated Contract Market. The federal license that makes Kalshi and Polymarket QCEX legal nationwide. Same regulatory category as CME Group. Grants CFTC jurisdiction and preempts state gaming laws.

A limited CFTC exemption that allows a platform to operate without full DCM licensing, subject to stated constraints. PredictIt operates under a no-action letter (US politics only, $850 max per contract). Less secure than a full DCM license.

The process by which a prediction market contract is settled. A contract "resolves YES" (pays $1.00 per contract to YES holders) or "resolves NO" (pays $1.00 per contract to NO holders). Resolution date and criteria are specified in advance.

The exact rules that determine how a market resolves. Always read these before trading. Edge cases in resolution criteria are the most common source of disputes (see: Khamenei market controversy, 2026).

A fee charged when you trade against the orderbook — i.e., you "take" liquidity posted by others. Polymarket charges ~2% taker fee. Contrast with maker fee (posting limit orders).

A fee charged only on winning contracts, calculated as a percentage of net profit. Kalshi's model: 0–7% of profit on winning trades, $0 on losing trades. Trader-friendly compared to taker fees on all trades.

A list of all pending buy and sell orders at different price levels. Kalshi and Polymarket both use orderbook-based pricing where buyers and sellers set prices. Distinct from automated market makers (AMMs) used in some DeFi prediction markets.

A limit order that adds liquidity to the orderbook: you specify a price and wait for a counterparty to fill it. May have lower fees than taker orders. The "maker" provides the price; the "taker" matches it.

The implied probability at which a trade has zero expected value. If you buy YES at $0.60, your break-even probability is 60%: you need to believe the true probability exceeds 60% for the trade to have positive expected value.

CFTC regulations governing bankruptcy proceedings for commodity brokers and exchanges. Requires DCMs to hold customer funds in segregated accounts, separate from company capital. Protects traders if a platform fails (unlike unregulated exchanges like FTX).

A formula for optimal bet sizing that maximizes long-run portfolio growth: bet fraction = (edge / odds). If you believe an event has 70% probability and the market implies 60%, your edge is 10pp. Kelly says bet a fraction proportional to that edge.

The probability-weighted average outcome of a trade. EV = (probability of YES × profit if YES) − (probability of NO × loss if NO). Positive EV means the trade is theoretically profitable; negative EV means it is not.

The CFTC-licensed entity acquired by Polymarket in December 2025, enabling Polymarket to serve US users legally. Polymarket QCEX is the regulated US version of Polymarket, distinct from the original global on-chain platform.

USD Coin — a stablecoin pegged to $1.00, issued by Circle. Polymarket QCEX settles in USDC on Base (Ethereum Layer 2). For tax purposes, USDC trades may create a minor taxable event, but since USDC is pegged to $1.00, the gain is typically $0.

An Ethereum Layer 2 network created by Coinbase. Polymarket QCEX settles contracts on Base. Fast and cheap transactions. When sending USDC to Polymarket, always use Base — NOT Ethereum mainnet, NOT Polygon, NOT Solana.

One Big Beautiful Bill Act — legislation signed July 4, 2025 that caps sports betting loss deductibility at 90% of sports betting winnings for US federal tax purposes starting 2026. Does NOT apply to Kalshi prediction market contracts (commodity derivatives, not sports wagers).

US tax form reporting miscellaneous income. Kalshi issues a 1099-MISC for net annual profits above $600. Net profit = total winnings minus total losses across all trades for the year. You must report this as ordinary income on Schedule 1 (Form 1040).

The legal principle that federal law overrides conflicting state law. CFTC-regulated prediction markets rely on federal preemption to operate in states that have tried to restrict them — state gaming laws cannot override the Commodity Exchange Act for CFTC-licensed contracts.

The depth of buy and sell orders in a market. A liquid market has many orders close to the current price, allowing large trades without moving the price much. Thin liquidity means your trade may significantly move the price (slippage) or not fill at all.

The difference between the price you expect and the price you actually get, due to insufficient liquidity. On a thinly traded Kalshi contract, a large order may fill at progressively worse prices as it exhausts available orders.

In prediction markets, a system that reports real-world outcomes to determine how a contract resolves. Polymarket's original platform uses UMA protocol oracles. Kalshi uses an internal resolution team. Oracles are the source of truth for resolution.

A decentralized oracle protocol used by the original Polymarket for dispute resolution. UMA token holders vote on contested resolutions. Slower than centralized resolution (2–5 days for disputes) but transparent and on-chain.

Your total holding in a particular contract. "Long YES" means you hold YES contracts and profit if the event occurs. "Long NO" means you hold NO contracts and profit if the event does not occur. You can hold both YES and NO positions.

How confident you are in your probability estimate relative to the market's implied probability. High conviction = you believe you have a meaningful edge over market consensus. Low conviction = you're unsure whether your estimate is better than the market's.