Prediction market glossary

Most of this vocabulary is borrowed from trading and sports betting, and a few terms mean subtly different things depending on which one the speaker came from. These are the definitions as they are used on prediction markets.

Prices and probability

• Contract / share — the thing you buy. Pays $1 if the outcome happens, $0 if it does not.
• Price — what a contract costs, in cents. Also the market's probability: 63c means about 63%.
• Implied probability — a price expressed as a percentage. On a sportsbook you must de-vig it before it means anything.
• Bid / ask — the best price someone will buy at, and the best price someone will sell at. You buy at the ask.
• Spread — the gap between bid and ask. The narrower it is, the cheaper the market is to trade.
• Mid — the midpoint of bid and ask. A useful reference and not a price you can get.

Cost

• Vig / juice / overround — the bookmaker's margin, baked into both sides of a price. A standard −110 / −110 market carries about 4.76%.
• De-vig / no-vig price — a price with the margin stripped out, so it can be compared to your own estimate. See what the vig really costs you.
• Slippage — the difference between the price you clicked and the average price you got, because your size ate through the book.
• Round trip — the full cost of getting in and back out. The number that must come off your edge.

Edge and sizing

• Edge — your probability minus the market's, after costs. Anything before costs is a gross gap, not an edge.
• +EV — positive expected value. A bet that makes money on average if repeated, which says nothing about this instance.
• Kelly criterion — the stake that maximises long-run growth. Almost everyone should bet a fraction of it; see position sizing.
• Bankroll — the money set aside for this. If losing it changes your life, it is not a bankroll.
• Drawdown — the fall from a peak. Guaranteed, repeatedly, even with a real edge.

Being judged

• Brier score — mean squared error of your probabilities. Lower is better; 0.25 is what you get for saying 50% to everything.
• Calibration — whether the things you call 70% happen 70% of the time.
• Closing-line value (CLV) — whether you got a better price than the market closed at. Converges much faster than win rate.
• Base rate — how often this kind of thing happens in general, before any specifics. The right place to start every estimate.

Market mechanics

• Resolution / settlement — the market ending and paying out. The rules that govern it are the contract.
• Resolution source — the specific authority whose number decides it. Different sources genuinely disagree; check which one you are on.
• Liquidity — how much can trade without moving the price. Thin markets are expensive whatever the spread looks like.
• Order book — the live list of bids and asks. Peer-to-peer venues have one; sportsbooks do not.
• Limit order — an order at a price you name, which fills only if someone takes it. The cheap way in on a wide market.