Prediction markets borrow language from finance, forecasting, and prop trading, then bend some of it to mean something slightly different. Whether you're new to the space or funded and still fuzzy on a term you see in every market's order book, this is the reference. Terms are grouped by category, each one defined in a sentence or two you can actually quote back. For the full walkthrough of how the market itself works, see what a prediction market prop firm is.
Market mechanics
YES share / NO share
The two sides of a binary prediction market contract. A YES share pays out $1 if the event happens and $0 if it doesn't; a NO share pays the opposite. You can buy either side, and the two prices always add up to roughly $1 before fees.
Resolution
The moment a market's real-world outcome becomes official and contracts pay out. Resolution is decided by a stated source or rule set in the market, not by a vote among traders, so knowing the resolution criteria before you enter is part of the trade.
Oracle
The data source or reporting mechanism a market relies on to determine its resolution. An oracle can be a news feed, an official government report, or a designated reporter, and the market's rules exist specifically to remove ambiguity about which oracle governs the outcome.
Order book
The live list of buy and sell orders waiting to be matched at each price level for a given contract. Reading the order book tells you how much size is available near the current price and how far you'd have to move the market to fill a larger order.
Spread
The gap between the best available buy price (bid) and best available sell price (ask) for a contract. A tight spread means a liquid, efficiently priced market; a wide spread means you'll give up more value just entering and exiting a position.
Slippage
The difference between the price you expected to pay and the price you actually got filled at, usually because your order was large enough to move through multiple price levels in the order book. Slippage eats into edge on thin markets more than it does on liquid ones.
Implied probability
A contract's price read as a percentage chance the outcome occurs. A YES contract trading at 35 cents implies the market is pricing roughly a 35% probability, since contracts settle at $1 or $0. This is the core mechanic that makes prediction markets a probability-pricing tool, not just a betting product.
Longshot bias
A well-documented tendency for low-probability outcomes to trade slightly above their true probability, and high-probability outcomes to trade slightly below theirs. Traders who systematically fade longshots and lean favorites are exploiting this bias directly.
Favorite
The outcome currently priced with the higher implied probability in a given market: the side the crowd currently believes is more likely to happen, reflected in a YES or NO price above 50 cents.
Liquidity
How much size can trade in a market without meaningfully moving its price. High-liquidity markets let you enter and exit larger positions with minimal slippage; low-liquidity markets can gap several cents on a single order.
Mid price
The midpoint between the best bid and best ask in the order book, commonly used as a market's "fair value" reference point when the spread makes the actual last-traded price less reliable.
Event types
Binary market
A market with exactly two possible outcomes, YES or NO, that settles at $1 for the correct side and $0 for the other. Most prediction markets you'll trade, from elections to economic data releases, are structured as binary contracts.
Categorical market
A market with more than two mutually exclusive outcomes, such as "which candidate wins" across a field of five. Each outcome trades as its own contract, and the implied probabilities across all outcomes should roughly sum to 100%.
Scalar market
A market that settles somewhere along a numeric range rather than a single yes/no line, for example a range of possible vote totals or temperature bands. The payout scales with where the actual number lands inside the range instead of paying an all-or-nothing outcome.
Event contract
The general term for a tradeable contract whose value is tied to the outcome of a real-world event. It's the umbrella category that binary, categorical, and scalar markets all fall under, and it's the term regulators and exchanges use in official rules.
Strike / threshold
The specific numeric line a scalar or categorical market is built around, for instance "above 4.25%" in a rate-decision market. Where the real outcome lands relative to the strike determines which contract pays out.
Trading and performance
Edge
The gap between your honest probability estimate and the market's current price. If you think a contract should be worth 60 cents and it's trading at 50, you have a 10-point edge: the raw input every profitable trading decision is built on.
Expected value (EV)
The average outcome of a trade if you could repeat it many times, calculated by weighting each possible payout by its probability. A positive-EV trade doesn't guarantee a win on any single attempt; it means the math favors you over a large enough sample.
Brier score
A scoring method for forecasting accuracy, calculated as the squared difference between your predicted probability and the actual outcome (1 or 0). A lower Brier score means better-calibrated forecasts, and 0 is a perfect prediction.
Calibration
How closely your stated probabilities match reality over many predictions. If you say "70% likely" on a hundred different trades and roughly 70 of them resolve YES, your probability estimates are well calibrated.
Bankroll
The total capital allocated to your trading, separate from money you can't afford to risk. Bankroll size determines position sizing; trading too large a fraction of it on any one market is how a real edge still ends in ruin.
Position sizing
The process of deciding how much capital to put into a single trade relative to your total bankroll or account size, usually scaled to the strength of your edge and the market's liquidity.
Drawdown
The decline in account value from a previous peak, usually expressed as a percentage. Drawdown is the standard way to measure risk taken on the way to a return, not just the return itself.
Trailing drawdown
A loss limit that moves up as your account balance hits new highs, rather than sitting fixed at your starting balance. PredictFundr funded accounts use a 10% trailing drawdown with no separate daily loss limit, so the trailing floor is the only drawdown rule to manage.
Max drawdown
The largest peak-to-trough decline an account has experienced over a given period. It's the headline risk statistic most traders and evaluators look at first when judging whether a strategy is survivable.
Profit target
The gain, usually expressed as a percentage of starting balance, a trader needs to reach to pass a funded-account evaluation. PredictFundr's challenge accounts carry a +20% profit target with no minimum number of trading days required to hit it.
Sharpe ratio
A measure of return per unit of risk, calculated as average return divided by the standard deviation of returns. Two traders can post the same profit, but the one with a higher Sharpe ratio got there with a smoother, less volatile equity curve.
Win rate
The percentage of trades that resolve profitably. A high win rate isn't the same as a profitable strategy: a trader can win 80% of trades and still lose money if the losing 20% are large enough, which is why win rate is read alongside average trade size, never alone.
Prop-firm terms
Challenge
A paid evaluation account a trader uses to prove they can hit a profit target without breaking the drawdown rules. Passing the challenge is what unlocks a funded account. PredictFundr offers challenge accounts from $5K to $100K.
Funded account
A live trading account provided by a prop firm after a trader passes their challenge, funded with the firm's capital rather than the trader's own money. Profits from a funded account are split between the trader and the firm under a stated payout percentage.
Payout split
The percentage of profit a funded trader keeps versus what the firm retains. PredictFundr funded accounts carry a 90% payout split, meaning the trader keeps 90 cents of every dollar of profit.
Consistency rule
A rule requiring profit to be spread across multiple trading days rather than concentrated in one lucky session. PredictFundr caps any single day at 40% of total positive profit at pass time, so a pass reflects a repeatable process instead of a single outsized bet.
Scaling plan
A schedule for increasing a funded trader's account size over time as they hit profit milestones, letting a trader who proves consistency trade progressively larger capital without starting a new challenge from scratch.
Lifetime cap
A ceiling some funded programs place on total payouts a trader can ever earn from a single funded account, after which the account is closed regardless of performance. PredictFundr funded accounts carry no lifetime cap.
Daily drawdown
A separate loss limit some prop firms apply within a single trading day, on top of an overall account drawdown limit. PredictFundr does not use a daily drawdown rule; only the 10% trailing drawdown applies.
Reset
The option to restart a failed or stalled challenge account, usually at a fee, rather than purchasing an entirely new evaluation.
Venue and settlement terms
CFTC
The Commodity Futures Trading Commission, the U.S. federal agency that regulates derivatives markets. Kalshi is a CFTC-regulated exchange, which is why its event contracts are listed and settled under a federal regulatory framework.
USDC
A U.S. dollar-pegged stablecoin used for deposits, trading, and payouts on crypto-native prediction market venues like Polymarket. PredictFundr pays funded traders weekly in USDC.
Settlement
The final step where a resolved market pays out contract holders and closes the position. Settlement timing varies by venue and event: some markets settle within minutes of an outcome being known, others wait on an official report.
Simulated environment
A trading environment that mirrors live market prices and mechanics but doesn't route real capital until a trader is funded. Challenge accounts are evaluated in a simulated environment before a trader ever manages the firm's actual capital.
Terminal
The trading interface a trader uses to read markets and place orders: charts, order book, position tracking, and risk metrics in one screen. You can try PredictFundr's free $25K practice terminal at app.predictfundr.com/terminal before ever buying a challenge.
Frequently asked questions
What is implied probability in a prediction market?
Implied probability is a contract's price read as a percentage chance the outcome happens. A YES share trading at 35 cents implies the market sees roughly a 35% probability, because contracts settle at $1 if the outcome occurs and $0 if it doesn't.
What's the difference between a binary and a scalar market?
A binary market has exactly two outcomes, YES or NO, and settles at $1 or $0. A scalar market settles somewhere on a numeric range, like a range of possible temperatures or vote totals, so the payout scales with where the actual result lands, not just whether a single line was crossed.
What is a trailing drawdown in a prop firm challenge?
A trailing drawdown is a loss limit that moves up as your account balance hits new highs, rather than staying fixed at your starting balance. PredictFundr uses a 10% trailing drawdown with no separate daily loss limit, so the only floor to manage is the trailing one.
What does edge mean in prediction market trading?
Edge is the gap between your honest probability estimate and the market's current price. If you believe a contract has a 60% chance of resolving YES and it's trading at 50 cents, you have a 10-point edge: the raw material every profitable trade is built from.
What is a Brier score?
A Brier score measures forecasting accuracy by scoring the squared difference between your predicted probability and the actual outcome (1 or 0). Lower is better, 0 is a perfect forecast, and traders use it to track whether their probability estimates are actually calibrated over time.
Know the terms. Now trade the market.
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