Prediction Markets Glossary: Key Terms Explained

This page defines the terms you'll come across on US prediction markets, from basic contract mechanics to the order types traders use every day. Each entry gives you a clear definition first, then explains how the term applies once you're actually trading and money is on the line. 

Everything here is written by people who trade these platforms directly, so the context reflects real experience rather than textbook theory. Read the Key Takeaways below for the core concepts, then use the full list as a reference whenever a term comes up that you want to understand. 

Key Takeaways

• A market poses a defined question, and traders buy and sell contracts (also called shares) tied to its possible outcomes. A standard binary contract pays $1.00 if its side wins and $0.00 if it loses.

• Resolution is the moment a market's outcome is confirmed, and settlement is when the exchange pays out the winning contracts.

• A contract's price relative to its maximum payout is read as an approximate market-implied probability, so a contract trading at $0.65 reflects a 65% implied chance. This is a market signal only, not a guarantee.

• Liquidity determines how easily you can enter or exit a position without moving the price against yourself.

• The two core order types are the market order, which executes right away at the current price, and the limit order, which executes only at the price you set.

• Every platform covered on WSN operates as a CFTC-regulated exchange that trades event contracts, a financial structure distinct from a sportsbook. To compare platforms, check out our guide on the best prediction market apps, or read our beginner's guide on how prediction markets work for sports betting to see how trading event contracts compares to traditional wagering.

C

CFTC

The Commodity Futures Trading Commission (CFTC) is the federal agency that regulates US prediction markets. Every platform WSN covers operates as or through a CFTC-registered Designated Contract Market, which is what places these exchanges under federal financial oversight rather than state gambling law. When you read that a platform is "federally regulated," this is the body doing the regulating. If you're wondering are prediction markets legal in the US, CFTC regulation is the key legal foundation that allows these exchanges to operate nationwide under federal law.

Contract

A contract is the basic unit you trade on a prediction market, and it represents a position on a defined outcome. A standard binary contract settles at $1.00 if its side wins and $0.00 if it loses. Buy a Yes contract at $0.40, and you stand to make $0.60 in profit if the event happens, or lose your $0.40 if it doesn't. The terms "contract" and "share" are used interchangeably on most platforms.

Contract Price

The contract price is what you pay to hold one share of an outcome, quoted between $0.01 and $0.99. That price also reflects the market's implied probability of the outcome. A contract priced at $0.72 costs 72 cents and signals a 72% market-implied chance that its outcome resolves Yes.

E

Event Contract

An event contract is the formal financial term for what you trade on a prediction market, a derivative tied to whether a specific real-world event occurs. This is the legal instrument that lets prediction markets operate as exchanges under CFTC jurisdiction. Elections, economic data releases, and sports outcomes are all structured as event contracts. To explore how to trade these instruments effectively, check out our guide on basic trading strategies for prediction markets, or read our comparison of prediction markets vs. sportsbooks to see how event contracts differ from traditional wagers.

Exposure

Exposure is the total amount of money you have committed to a position and stand to lose if it settles against you. Tracking exposure across several markets helps you avoid overcommitting capital to correlated outcomes. Holding 200 contracts bought at $0.50 gives you $100 of exposure, which is the maximum you can lose on that position.

I

Implied Probability

Implied probability is the chance of an outcome as expressed by a contract's price. Because contracts settle at $1.00 or $0.00, the price in cents translates directly into a percentage, which is the single most useful thing to understand about how these markets work. A contract at $0.30 implies a 30% probability, and a contract at $0.88 implies an 88% probability. Reading price as probability lets you judge whether the market's view lines up with your own. For a complete guide on how prices convert into American or decimal betting line equivalents, check out our explainer on prediction market odds.

Watch out: probability, not a payout guarantee.Implied probability reflects the market's collective view at a moment in time, and it is not a promise. A contract at $0.90 can still settle at $0.00. A high implied probability means the market considers an outcome likely, not that the outcome is certain. 

K

KYC

Know Your Customer refers to the identity checks a platform conducts before you can trade or withdraw funds. These checks confirm your identity, age, and location, which is how platforms enforce eligibility rules and state-by-state availability. Expect to verify your identity and sometimes your address before your first withdrawal clears.

L

Last Price

The last price is the price at which the most recent trade in a market executed. It gives you a quick read on where a market is trading right now, though it reflects a completed trade rather than the price you'll necessarily get on your next order. In a thin market, the last price and the price available for your order can differ noticeably.

Limit Order

A limit order is an instruction to trade only at a price you specify or better. You post the order, and it waits in the order book until another trader matches it, giving you precise control over your entry and exit prices. Setting a limit order to buy Yes at $0.45 means you'll pay no more than 45 cents, even if the order sits unfilled for a while. Limit orders are the tool patient traders use to avoid overpaying in fast-moving markets.

Liquidity

Liquidity describes how much trading activity and how many resting orders a market has at any given time. That level of activity determines how easily you can buy or sell a position without pushing the contract price away from where it currently trades. A liquid market lets you buy or sell a large number of contracts close to the quoted price, while a low-liquidity market forces you to accept worse prices as you trade through the limited orders available. 

Liquidity matters most on time-sensitive contracts, where the price can move quickly on breaking news, and a market with few resting orders leaves you buying or selling at prices well away from the one you were aiming for.

M

Maker

A maker is a trader who posts a limit order that rests in the order book and adds liquidity, rather than filling an existing order. Many platforms charge makers lower fees, or nothing at all, because resting orders make the market deeper for everyone. Posting a limit order to buy at $0.48 and waiting for a match makes you the maker on that trade.

Market

A market is a single question with a defined, verifiable outcome, such as which party controls the Senate after an election. Each market contains the contracts you trade, and it remains open until the outcome is resolved. Platforms group related markets into categories like politics, economics, and finance so you can find what you want to trade.

Market Order

A market order fills immediately at the best price currently available in the order book. You give up price control in exchange for speed, which makes it the right tool when getting filled matters more than shaving a cent off your entry. Placing a market order to buy Yes takes whatever price the book shows, so in a fast-moving market, your fill can land a little higher than the price you saw a second earlier.

Commonly confused: market order vs. limit order. A market order prioritizes speed and executes right away at the going price. A limit order prioritizes price and executes only at your number, though it may go unmatched. Use a market order when you need to get in or out of a trade immediately, and a limit order when the price you pay is more important than the timing. 

Mid-Price

The mid-price is the midpoint between the highest price buyers are willing to bid, and the lowest price sellers are willing to accept. It gives you a cleaner read on a market's true value than the last price, especially when the spread is wide. If the best bid is $0.60 and the best ask is $0.64, the mid-price is $0.62.

O

Order Book

The order book is the live list of all resting buy and sell orders for a market, arranged by price. It shows you the depth available at each price level, indicating how much you can trade before your order starts pushing the price. A deep order book with plenty of orders near the current price signals a liquid market you can move in and out of cleanly. To understand how order-book trading mechanics differ from fixed-odds bookmakers, see our detailed guide on prediction markets vs. sportsbooks.

P

Position

A position is the set of contracts you currently hold in a market. It can be on the Yes side, the No side, or a mix as you adjust, and its value rises and falls with the contract price until the market resolves. Holding 100 Yes contracts bought at $0.55 is a position worth $55 at your entry, which gains or loses value as the price moves.

R

Resolution

Resolution is the point at which a market's outcome is officially determined against a defined source, such as a certified election result or an official economic data release. Clear resolution criteria matter, because they remove ambiguity about which contracts win. A well-written market names its resolution source up front, so you know exactly what confirms the outcome before you trade.

S

Settlement

Settlement is the cash-payout step after resolution, in which the exchange pays $1.00 to every winning contract and $0.00 to every losing contract. Once the market settles, the funds are credited to your account, and the position closes. A Yes contract you bought at $0.35 settles at $1.00 if the outcome occurs, delivering a $0.65 gross profit per contract.

Settlement risk: a contract can lose its full purchase price. A losing contract settles at $0.00, with no partial payout and no recovery once a market resolves against your position. Size every position with the understanding that the full amount you commit is at stake. 

Share

A share is another name for a contract, the single unit you buy and sell in a market. The terms are interchangeable, though some platforms favor "shares" and others favor "contracts." One share pays $1.00 on a winning outcome and $0.00 on a losing one, exactly like a contract.

Spread

The spread is the gap between the highest price buyers are bidding and the lowest price sellers are asking. A narrow spread points to a liquid, actively traded market, while a wide spread signals thin trading and a higher cost to enter and exit. A market with a $0.01 spread costs you very little to trade, whereas a $0.10 spread means you're giving up ground the moment you take a position.

T

Taker

A taker is a trader who fills an existing order in the book rather than posting one, removing liquidity from the market. Platforms typically charge takers a higher fee than makers, since taking orders draws down the available depth. Hitting a market order that fills against resting orders makes you the taker on that trade.

Why You Should Trust Us

Everyone who worked on this glossary trades prediction markets themselves, so these definitions come from experience, not a secondhand explainer. We deposit our own money, take positions, and cash out on every platform we write about, which means the context behind each term matches what you'll run into once you start trading. And because these platforms keep evolving, we revisit the glossary whenever they roll out new order types, change their fees, or rework how markets are displayed. Anything regulatory gets checked against primary CFTC records. 

Responsible Risk Management

Good trading and good self-control go hand in hand. Since a position that loses takes your whole stake with it, the traders who last are the ones who only risk what they can afford to lose and settle on their limits before buying in rather than after. Keep an eye on your own habits, too. The moment trading shifts from a decision you make to something closer to a pull you can't resist, step away and reach out for help. For more, visit our Responsible Risk Management page.

Support is available 24/7 through the National Council on Problem Gambling’s Helpline: call or text 1-800-MY-RESET or chat at 1800myreset.org. Additional support is available through Gamblers Anonymous, Gam-Anon, and SMART Recovery.