Prediction Markets Glossary — Plain-English Trading Terms

See also

1099: IRS form Kalshi/Polymarket may issue if your net winnings clear reporting thresholds. You owe federal tax on net profits.
ACH: Automated Clearing House — the standard US bank-transfer rail. Most prediction-market deposits/withdrawals run on ACH.
AML: Anti-Money-Laundering rules. Why exchanges ID-verify you and report large or suspicious transactions.
Ask: The lowest price a seller is currently willing to accept for a Yes (or No) contract.
Bid: The highest price a buyer is currently willing to pay for a Yes (or No) contract.
Bureau of Gambling Control: California's gambling regulator inside the state CFTC. Oversees cardrooms and tribal compliance; does not regulate CFTC event contracts.
CFTC: Commodity Futures Trading Commission — federal regulator that licenses prediction-market exchanges as DCMs.; Read more
CGCC: California Gambling Control Commission — licenses and regulates card clubs and tribal gaming. Has no jurisdiction over CFTC-regulated prediction markets.
Contract size: The notional value of one event contract. On Kalshi and Polymarket each Yes contract pays $1 at resolution.
Cost basis: What you paid (in cents) for a contract, used to compute your taxable gain or loss at resolution.
DCM: Designated Contract Market — a CFTC-licensed exchange (Kalshi, CME, etc.). The legal basis for US prediction markets.; Read more
DCO: Derivatives Clearing Organization — a CFTC licence to clear and settle its own trades. ProphetX holds one alongside its DCM licence.; Read more
Depth: The total volume of resting orders at each price level. Deep books absorb large trades without moving price.
Election contract: An event contract on an election outcome. Kalshi won the right to list these in 2024 after a federal court ruling.
Event contract: A binary Yes/No contract that settles to $1 if the event happens, $0 if it doesn't. The price is the implied probability.; Read more
Expected value: Average profit per trade if repeated infinitely: (probability × payout) − (probability of loss × stake).
Fill: The execution of a buy or sell order, in full or in part, at one or more price levels.
FinCEN: Financial Crimes Enforcement Network. Sets the AML/KYC rules every US prediction-market exchange must implement.
Gasless: A transaction model where the platform sponsors blockchain fees so users don't need ETH/MATIC. Polymarket trades are gasless for end users.
Hedge: Opening an offsetting position to lock in a profit or cap a loss before the market resolves.
Implied probability: The market price read as a probability — a Yes contract trading at 65¢ implies a 65% chance the event happens.
Kalshi: The largest US-licensed event-contract exchange. Operates as a CFTC DCM and is available in 47 states plus D.C.; Read more
Kalshi Pro: Kalshi's advanced trading interface with full order book, market depth, and API access for higher-volume traders.
KYC: Know-Your-Customer — the ID verification step every regulated US exchange must run before you can trade.
Limit order: An order that only fills at your specified price or better. Slower but protects you from bad fills in thin markets.
Liquidity: How easily you can enter/exit a trade without moving the price. Tighter bid/ask = better liquidity.
Mark-to-market: Repricing your open positions to the current market price so unrealized P&L is always visible.
Market maker rewards: Incentives exchanges pay to traders who post tight two-sided quotes that improve market liquidity.
Market order: An instruction to buy or sell immediately at the best available price. Faster than a limit but exposes you to slippage.
MetaMask: A crypto wallet historically used to fund Polymarket's international site. US residents now sign up and fund in dollars in the Polymarket US app.
Mid: The midpoint between the best bid and best ask — the fairest single-number quote when the spread is tight.
Mid-event exit: Selling a position while the event is still running, locking in the current price instead of waiting for settlement.; Read more
NFA: National Futures Association — the SRO Kalshi and other DCMs belong to. Handles registration, audits, and customer disputes.
No-action letter: A CFTC staff letter saying the agency will not pursue enforcement against a specific activity. A common precursor to formal approval.
No-arb: A pricing condition where Yes + No prices sum to ~$1, leaving no risk-free arbitrage opportunity.
OFAC: Office of Foreign Assets Control — the US sanctions list exchanges screen against before letting you trade.
Order book: Live list of every resting buy/sell order. Reading depth tells you where real money is sitting.
Ordinary income: Income taxed at your regular bracket. It's one of several treatments argued for prediction-market profits; the IRS hasn't said which applies.
Partial fill: When only part of your order executes because there isn't enough liquidity at your price.
Polymarket: Sports, politics and culture markets in US dollars. US residents trade through the Polymarket US app, a CFTC-regulated exchange that trades in dollars, available in 49 states plus D.C.; Read more
Polymarket Earn: Polymarket's market-making rewards program that pays traders for posting resting liquidity in eligible markets.
Position: The contracts you currently hold in a market. You can add to, reduce, or sell a position before the event settles.; Read more
Privy wallet: An embedded wallet provider Polymarket uses so US users can fund accounts via Apple Pay without holding crypto themselves.
Prohibited event: A contract type (assassination, terrorism, certain gaming events) the CFTC bars under §40.11. Excludes most sports/politics today.
Prop 26: The 2022 California ballot measure (failed) that would have authorized in-person tribal sports betting. Doesn't apply to federally regulated CFTC event contracts.
Prop 27: The 2022 California ballot measure (failed) that would have legalized online commercial sports betting. CFTC-regulated prediction markets remain legal in CA regardless.
ProphetX: Sports-first US prediction market, CFTC-licensed as both a DCM and a DCO since June 2026. Live in 49 states and DC (not Nevada), 21+.; Read more
Section 1256: A tax rule for certain regulated futures and options (60% long-term / 40% short-term capital gains). Whether event contracts qualify is disputed and the IRS hasn't issued guidance; ask a tax professional.
Settlement: The post-resolution payout: winning Yes contracts pay $1, losing contracts pay $0.
Slippage: The difference between the price you expected and the price you actually got — a hidden cost in thin markets.
Sports event contract: An event contract resolving on a sports outcome — legal on Kalshi as a CFTC-regulated derivative, separate from state sports betting law.
Spread: The gap between the best bid and best ask. Narrow spread = cheap to trade.
Spread cost: The implicit cost of crossing the bid-ask spread on a prediction market. Tighter spreads on deeply traded contracts mean you give up less on entry and exit.
SRO: Self-Regulatory Organization — an industry body (like NFA) that polices member exchanges under federal oversight.
Tick size: The smallest price increment a market allows — typically $0.01 on Kalshi and Polymarket.
True odds: Your own modeled probability of an outcome, used to compare against the market's implied probability.
USDC: A US-dollar-backed stablecoin used on Polymarket's international site. US residents trade in dollars through the Polymarket US app instead.
W-9: IRS form Kalshi collects at signup so it can issue 1099s, e.g. for interest, rewards and crypto transfers.
Wash sale: An IRS rule that disallows a loss if you re-enter the same position within 30 days. Generally does not apply to event contracts but worth tracking.

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