Prediction Market Wiki
Understand a market, check a trading assumption, or learn a new concept.
Platform & Infrastructure
2Kalshi
Kalshi is a CFTC-regulated U.S. exchange for event contracts, allowing traders to buy and sell positions on real-world outcomes using USD with traditional order book mechanics.
Polymarket
Polymarket is a decentralized prediction market platform where traders buy and sell shares on real-world event outcomes using USDC on the Polygon blockchain.
Analysis & Strategy
36Adverse Selection
A market phenomenon where informed traders systematically take profitable positions against less-informed participants, affecting liquidity and trading costs in prediction markets.
Algorithmic Trading
Using computer programs to execute trades based on predefined rules or mathematical models, enabling automated market making, arbitrage, and systematic strategies in prediction markets.
Arbitrage
A trading strategy that exploits price differences for identical outcomes across platforms or related markets to capture risk-free profit.
Asymmetric Information
A market condition where one party possesses more or better information than another, driving price discovery and market efficiency in prediction markets.
Bayes' Theorem
A mathematical formula for updating probability estimates when new evidence arrives, forming the foundation of rational belief revision in prediction markets.
Black Swan
A rare, unpredictable event with extreme impact that is rationalized in hindsight, explaining why prediction markets struggle with tail risks.
Behavioral Concepts
6Herd Instinct
The tendency to follow group behavior, creating momentum and information cascades that can push prediction market prices away from true probabilities.
Heuristics
Mental shortcuts enabling quick decisions that can introduce systematic biases in probability estimates, creating both risks and opportunities in prediction markets.
Hindsight Bias
The tendency to perceive past events as more predictable than they were, causing traders to believe they "knew it all along" and undermining honest self-assessment in prediction markets.
Long-Shot Bias
The tendency for traders to overvalue small probabilities, leading to overpriced "long shot" bets and negative expected value for underdogs.
Prospect Theory
A behavioral economics framework explaining how people evaluate gains and losses differently, causing systematic mispricings in prediction markets through loss aversion and probability weighting.
Survivorship Bias
The tendency to focus on winners while ignoring failures, leading to overestimated success rates and flawed evaluation of prediction market strategies and track records.
DeFi & Blockchain
3Bonding Curve
A mathematical formula that automatically determines asset prices based on supply, enabling continuous liquidity without traditional order books.
Governance
The systems and processes for making collective decisions about prediction market platforms, including dispute resolution, rule changes, and protocol upgrades.
Oracle
A system that provides external real-world data to prediction markets, determining how markets resolve by reporting whether events occurred.
Infrastructure & Technology
2API
Application Programming Interface enabling programmatic access to prediction market data, order placement, and account management for automated trading systems.
Cryptocurrency
Digital currency using cryptographic security on decentralized blockchain networks, serving as the primary medium of exchange on prediction market platforms like Polymarket.
Kalshi Specific
4Designated Contract Market (DCM)
A CFTC-licensed exchange category for trading derivatives. Kalshi operates as the first DCM approved for event contracts.
Kalshi Tick Size
Kalshi uses a $0.01 (1 cent) tick size for all contracts, with prices ranging from $0.01 to $0.99 representing 1% to 99% probability.
Position Limits
Maximum contracts a user can hold per market or series. Enforced by platforms like Kalshi for risk management and regulatory compliance.
Series
A recurring set of related markets across time periods (e.g., monthly CPI). Kalshi uses series to organize standardized, repeating contracts.
Market Mechanics
32Automated Market Maker (AMM)
An algorithmic system that provides liquidity using mathematical formulas instead of traditional order books, enabling trading without counterparties.
Bonds
Collateral staked by proposers and disputers in prediction market resolution systems, creating economic incentives for honest outcome reporting.
Bookie
A traditional betting operator who sets odds, accepts wagers, and manages risk by balancing action on both sides of an outcome.
Close Time
The deadline when trading ends for a prediction market, after which positions are locked until resolution and settlement occur.
Closed
The market state where trading has stopped but the outcome has not yet been determined and payouts distributed. Unopened → Open → Closed → Settled/Resolved
Closed vs. Settled
Understanding the critical distinction between when a market stops trading (closed) and when payouts are distributed (settled).
Market Participants
6Arbitrageur
A trader who profits by exploiting price discrepancies between related markets or platforms, enforcing pricing consistency and market efficiency in prediction markets.
News Trader
A trader who specializes in rapidly interpreting and trading on breaking news, polls, and announcements, profiting from faster or better information processing.
Noise Trader
A trader who makes decisions based on irrelevant signals, emotion, or hunches rather than fundamental information, essential to understanding market liquidity and price inefficiency.
Position Trader
A trading style focused on holding positions for weeks or months based on fundamental analysis, suited for prediction market participants with long-term views and limited time.
Smart Money
Sophisticated traders with superior information, analysis, or resources whose trading activity often moves prediction market prices toward accurate probabilities.
Swing Trading
A trading style holding positions for days to weeks, capturing intermediate price movements and bridging the gap between short-term news trading and long-term position trading.
Market Structure
2Correlated Markets
Prediction markets whose outcomes are logically connected, either resolving identically (same-outcome) or oppositely (different-outcome), enabling cross-market trading strategies.
Market Fragmentation
The problem of overlapping or duplicate prediction markets with slightly different wording that creates search costs, splits liquidity, and reduces market efficiency.
Market Theory
13Efficient Market Hypothesis (EMH)
The theory that asset prices fully reflect all available information, making it impossible to consistently outperform the market through analysis or timing.
Futarchy
A governance system where prediction markets determine policy by selecting options that markets predict will maximize democratically-chosen welfare metrics.
Game Theory
The mathematical study of strategic decision-making where outcomes depend on the choices of multiple participants, essential for understanding prediction market dynamics.
Incentives
The rewards and penalties that motivate behavior in prediction markets, aligning trader self-interest with accurate forecasting and honest participation.
Information Aggregation
The process by which prediction markets combine dispersed private information from many participants into a single price that reflects collective knowledge.
Insider Trading
Trading based on material non-public information, which is illegal in securities markets but operates under different rules in prediction markets.
Market Types
25Announcer Markets
A prediction market where the outcome is determined based on an official announcement or statement, regardless of underlying reality.
Binary Markets
A prediction market with exactly two outcomes (Yes/No) where winning shares pay $1 and prices reflect implied probabilities.
Bonding Curve Markets
A prediction market structure using mathematical bonding curves to determine share prices algorithmically, where early participants receive better prices as cost increases with demand.
Categorical Market
A prediction market with three or more mutually exclusive outcomes, where prices represent probabilities that must sum to approximately 100%.
Combinatorial Markets
A prediction market structure allowing traders to bet on combinations of outcomes across multiple correlated events, enabling parlay-style positions and richer probability expression.
Commit-Reveal Markets
A prediction market structure using sealed predictions with cryptographic commitment, preventing herding behavior by ensuring all forecasts are made independently before any are visible.
Polymarket Specific
5Conditional Tokens
A token standard that enables prediction markets with complex, combinatorial outcomes by representing positions contingent on multiple conditions.
NegRisk
Polymarket architecture that converts NO shares to YES shares in other outcomes plus collateral. Improves capital efficiency in multi-outcome markets.
Outcome Token
Blockchain-based tokens representing shares in a prediction market outcome, where winning tokens redeem for $1 USDC and losing tokens become worthless.
Polymarket Tick Size
Polymarket uses a $0.01 (1 cent) tick size for all markets, meaning prices move in penny increments from $0.01 to $0.99.
UMA Optimistic Oracle
A decentralized resolution system where outcomes are proposed and assumed correct unless disputed, with economic incentives ensuring honest reporting.
Regulatory & Legal
2CFTC
The Commodity Futures Trading Commission (CFTC) is an independent US federal agency that regulates derivatives markets including prediction markets.
Event Contract
A CFTC-regulated derivative that pays $1 if a real-world event occurs and $0 if it doesn't. The core instrument of prediction markets.
Risk & Management
4Counterparty Risk
The risk that the other party in a transaction fails to fulfill their obligations, including platform insolvency, smart contract failure, or settlement default in prediction markets.
Drawdown
The peak-to-trough decline in portfolio value before recovery, measuring the worst loss experienced during a period and essential for risk management in prediction market trading.
Front-Running
The practice of trading ahead of pending orders to profit from anticipated price movements, a significant issue in blockchain-based prediction markets involving MEV extraction and sandwich attacks.
Wash Trading
A manipulative practice where a trader simultaneously buys and sells the same asset to create misleading volume or price activity, undermining market integrity in prediction markets.
Strategy Guides
2Arbitrage Guide: How to Find & Execute Cross-Platform Opportunities
A practical step-by-step guide to finding and executing prediction market arbitrage across Polymarket, Kalshi, and other platforms. Includes calculator, examples, and risk management.
How to Beat Prediction Market Trading Bots on Polymarket and Kalshi
Learn strategies to compete with algorithmic traders on prediction markets. Understand how bots operate, where they have weaknesses, and how human traders can find edge.
Trader Types
12Accumulator Trader
A prediction market trader who gradually builds positions through dollar-cost averaging, buying dips in single outcomes over extended periods.
Event Trader
A prediction market trader who focuses on major scheduled catalysts like economic releases, concentrating capital during peak volatility windows.
High-Frequency Trader
A trader who executes dozens of rapid trades daily on short-dated prediction markets, profiting from small price movements and tight spreads.
Information Trader
A prediction market trader who enters positions based on early access to information before it becomes public, exploiting timing advantages.
Mean-Reversion Trader
A prediction market trader who profits from choppy markets by buying when prices crash and selling on rebounds within established trading ranges.
Meme Trader
A prediction market trader who targets viral events, celebrity scandals, and social media-driven markets, profiting from narrative-driven volatility.
Trading & Technology
1Trading Fundamentals
23Bid-Ask Spread
The difference between the highest price buyers will pay (bid) and the lowest price sellers will accept (ask), representing the cost of immediate trade execution.
Copy Trading
A trading strategy where users automatically replicate the trades of experienced traders in real-time.
Hedging
A risk management strategy that uses prediction market positions to offset potential losses from real-world events or other investments.
Limit Order
An order to buy or sell shares at a specific price or better, providing control over execution price while requiring patience for the market to reach your level.
Liquidation
The forced closure of a leveraged position when losses exceed available margin, resulting in automatic sale to prevent further losses beyond deposited collateral.
Liquidity
The ease with which shares can be bought or sold without significantly affecting the price, determined by market depth, trading activity, and spread tightness.
Trading Mechanics
2Ask
The lowest price at which a seller is willing to sell shares in a prediction market, representing the cost of immediate purchase and a key component of the bid-ask spread.
Depth of Market (DOM)
The quantity of buy and sell orders at different price levels in an order book, showing available liquidity and potential price impact for trades in prediction markets.