Prediction Markets Glossary

The jargon you'll meet on Kalshi, Polymarket and any CA-legal event contract — defined in one or two sentences.

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.

Arbitrage

Locking in a guaranteed profit by trading the same event across two venues at mispriced odds.

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 DOJ. 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.

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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.

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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.

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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 all 50 states.

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Kalshi Pro

Kalshi's advanced trading interface with full order book, market depth, and API access for higher-volume traders.

Kelly criterion

A position-sizing formula that maximises long-run growth by betting a fraction proportional to your edge.

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

USDC or token 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 self-custody crypto wallet historically used to fund Polymarket. The 2025 US relaunch added simpler iOS-native onboarding via Privy.

Mid

The midpoint between the best bid and best ask — the fairest single-number quote when the spread is tight.

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

The default federal tax treatment for prediction-market profits if Section 1256 doesn't apply — taxed at your marginal bracket.

Partial fill

When only part of your order executes because there isn't enough liquidity at your price.

Polymarket

Decentralized prediction-market platform that relaunched US trading in late 2025 via QCX, a CFTC-registered exchange.

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Polymarket Earn

Polymarket's market-making rewards program that pays USDC for posting resting liquidity in eligible markets.

Privy wallet

An embedded wallet provider Polymarket uses so US iOS 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.

Resolution

The moment a market's outcome is officially decided by the exchange's resolution source.

Section 1256

An IRS tax treatment for regulated futures (60% long-term / 40% short-term capital gains). Kalshi event contracts may qualify; consult a CPA.

Self-certification

The process where a DCM lists a new contract by filing it with the CFTC; the contract goes live unless the CFTC objects.

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.

Sweepstakes model

A workaround used by some social-casino apps (PrizePicks, Fliff) that sidesteps gaming law. Distinct from CFTC-regulated event contracts.

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 Polymarket uses for deposits and trading on its Polygon-based smart contracts.

W-9

IRS form Kalshi collects at signup so it can issue a 1099 if your activity crosses reporting thresholds.

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.

Withholding

Tax pre-collected by an exchange from large payouts. US prediction-market exchanges generally do not withhold; you're responsible at filing time.