Glossary of Terms
Key terms and definitions for prediction markets, forecasting, and probability.
A
Ambiguous Outcome
An ambiguous outcome occurs when the market rules do not uniquely determine a result for real world edge cases.
Ask
Ask is the lowest current price someone is willing to sell at in the order book.
B
Bankroll
Bankroll is the pool of capital you allocate for trading, with rules that protect you from drawdowns and ruin.
Base Rate
Base rate is the background frequency of an outcome before considering new evidence, often used as a starting prior.
Bayes Theorem
Bayes theorem is a rule for updating probability with evidence, often implemented using odds and likelihood ratios.
Bid
Bid is the highest current price someone is willing to pay in the order book.
Bid ask Spread
Bid ask spread is the difference between ask and bid. Wider spreads usually mean higher execution cost.
Break even Probability
Break even probability is the minimum probability estimate required to offset costs under a simplified model.
Brier Score
Brier score is a proper scoring rule for binary forecasts that measures squared error between predicted probability and the outcome.
C
Calibration
Calibration measures whether predicted probabilities match observed frequencies over many forecasts.
Calibration Error
Calibration error measures how far predicted probabilities deviate from observed frequencies across probability bins.
Conditional Probability
Conditional probability is the probability of an event given that another event or condition is true, often written as P(A given B).
Correlation
Correlation measures how much positions move together. High correlation increases drawdown risk even with many trades.
D
Discrimination
Discrimination is the ability of forecasts to separate outcomes that happen from outcomes that do not.
Dispute
A dispute is a challenge to how a market is settled, typically triggered by ambiguity, conflicting sources, or edge cases.
Diversification
Diversification is spreading exposure across less correlated markets to reduce drawdown risk and stabilize results.
E
Edge
Edge is the difference between your predicted probability and the market implied probability.
Effective Spread
Effective spread measures the execution cost relative to a reference price, often the mid price.
Execution Risk
Execution risk is the risk that you cannot trade at your reference price due to spread, depth, or slippage.
Expected Value
Expected value is a simplified estimate of value per share based on predicted probability, market price, and costs.
F
Fair Price
Fair price is the price that matches your predicted probability on the platform price scale.
False Negative Rate
False negative rate is the probability of a negative test when the condition is true, equal to 1 minus sensitivity.
False Positive Rate
False positive rate is the probability of a positive test when the condition is false, equal to 1 minus specificity.
Fees
Fees are platform charges that reduce net results and raise the break even probability.
I
Implied Probability
Implied probability is the probability implied by a market price on the platform price scale.
Insider Trading
Insider trading is trading based on material non public information when prohibited by platform rules or regulation.
K
Kelly Criterion
Kelly criterion is a position sizing rule that suggests how much to risk based on edge and odds, under strong assumptions.
L
Likelihood
Likelihood is how probable the observed evidence is under a specific hypothesis, used to update beliefs.
Likelihood Ratio
Likelihood ratio measures how strongly evidence shifts odds. Values above 1 increase odds, below 1 decrease odds.
Limit Order
A limit order sets the worst price you will accept. It can reduce costs but may not fill.
Liquidity
Liquidity is how easily you can trade without moving price. Low liquidity increases spread and slippage.
Log Loss
Log loss is a proper scoring rule that strongly penalizes extreme probabilities when outcomes go the other way.
Log odds
Log odds are the natural log of odds. Many models output log odds before converting to probability.
Logit
Logit is the log odds of a probability, defined as ln(p divided by (1 minus p)). It is commonly used in statistical models.
M
Maker
A maker adds liquidity by placing limit orders that rest in the order book, often facing different fees than takers.
Maker Taker
Maker taker is a fee model where liquidity providers pay different fees than liquidity removers.
Market Maker
A market maker provides liquidity by quoting bids and asks, helping tighten spreads and stabilize execution.
Market Manipulation
Market manipulation is behavior intended to distort prices, mislead participants, or exploit settlement mechanics.
Market Order
A market order executes immediately at the best available prices, usually crossing the spread and paying taker costs.
Market Price
Market price is the tradable price you reference, such as mid, bid, or ask, on the platform price scale.
Mid Price
Mid price is the midpoint between bid and ask, used as a neutral reference when both are available.
N
Normalize Probabilities
Normalize probabilities means adjusting a set of probabilities so they sum to 1, often used for multi-outcome markets or models.
O
Odds
Odds express probability as a ratio p divided by (1 minus p).
Odds Ratio
Odds ratio is the odds of an outcome relative to the odds of the opposite outcome.
Oracle
An oracle is the source of truth used for settlement, such as a publication, official data release, or rule-defined authority.
Order Book
An order book is the list of bids and asks that shows liquidity and the bid ask spread.
P
Position Sizing
Position sizing is how much you allocate to a trade, based on bankroll, edge, uncertainty, and costs.
Posterior Odds
Posterior odds are the odds after applying evidence strength to prior odds.
Posterior Probability
Posterior probability is the updated probability after incorporating evidence.
Predicted Probability
A predicted probability is your probability estimate for an outcome, expressed on a 0 to 1 or 0 to 100 scale.
Price Impact
Price impact is the market movement caused by your trade, often larger in low liquidity environments.
Price Improvement
Price improvement occurs when you execute at a better price than the currently displayed quote, often inside the spread.
Price Scale (0 to 100 vs 0 to 1)
Price scale is the numeric convention used to display prices and probabilities, commonly 0 to 100 or 0 to 1.
Prior Odds
Prior odds are prior probability expressed as odds p divided by (1 minus p).
Prior Probability
Prior probability is the base rate you start with before incorporating new evidence.
Probability
Probability is a number that quantifies how likely an outcome is, commonly expressed as 0 to 1 or 0 to 100.
Proper Scoring Rule
A proper scoring rule rewards honest probability forecasts by making truth telling the best strategy.
R
Realized Spread
Realized spread estimates how much of the spread a liquidity provider earns after short term price movement.
Reliability
Reliability is another word for calibration: predicted probabilities match observed frequencies over time.
Risk of Ruin
Risk of ruin is the probability of losing so much capital that you cannot continue, driven by sizing, variance, and costs.
S
Sensitivity
Sensitivity is the true positive rate: the probability a test is positive given the condition is true.
Settlement
Settlement is how a market resolves, including the outcome definition, source of truth, and timing.
Sharpness
Sharpness describes how concentrated forecasts are away from 50 percent, independent of whether they are correct.
Slippage
Slippage is the difference between the price you expect and the price you actually get when executing.
Softmax
Softmax converts a set of scores into probabilities that sum to 1, commonly used for multi-class prediction outputs.
Specificity
Specificity is the true negative rate: the probability a test is negative given the condition is false.
T
Taker
A taker removes liquidity by executing immediately against resting orders, usually crossing the spread.
Trading Fee
Trading fee is a platform charge applied when you execute trades, raising break-even levels and reducing net results.
V
Vig
Vig is the built-in margin in quoted prices. In prediction-style products it often shows up through spread, fees, or pricing skew.