Quick answer
Short, sourced definitions of the terms you meet when you read prediction-market prices, compare bookmaker odds or build tools on an odds API. Each term opens with a one- or two-sentence answer, then a worked example, the formula where there is one, and links to related terms. Educational only — not betting or financial advice.
Market structure
- Prediction market
- A prediction market is an exchange where people trade contracts whose payout depends on whether a future event happens, so the trading price can be read as the crowd's probability estimate.
- Event contract
- An event contract is a derivative whose payoff is tied to whether a specified event occurs (an election result, a rate decision, a game outcome) rather than to the price of an asset.
- Binary option / binary contract
- A binary contract pays either a fixed amount or nothing, depending on whether a condition is met at expiry; the CFTC glossary calls this a binary (or digital) option.
- Order book (CLOB)
- An order book is the list of open buy (bid) and sell (ask) orders for a contract, matched by price and time; a central limit order book (CLOB) is the electronic version most exchanges use.
- AMM / LMSR
- An automated market maker (AMM) quotes prices from a formula instead of an order book; the logarithmic market scoring rule (LMSR), proposed by Robin Hanson, is the classic AMM for prediction markets.
- Liquidity
- Liquidity is how easily you can buy or sell without moving the price; the CFTC describes a liquid market as one where trades happen with minimal effect on price.
- Bid-ask spread
- The bid-ask spread is the difference between the highest price a buyer will pay and the lowest price a seller will accept.
- Resolution and oracle (incl. UMA)
- Resolution is the step that decides which outcome of a market won; an oracle is the mechanism that brings that real-world result on-chain or into the exchange.
- Settlement
- Settlement is the final payout of a contract after resolution: winning positions receive the fixed payout and losing positions expire worthless.
Odds and pricing
- Implied probability
- Implied probability converts a price or betting odds into the percentage chance the price implies; for decimal odds it is 1 ÷ odds.
- Overround (vig, juice, margin)
- The overround is the amount by which a bookmaker market's implied probabilities exceed 100%; it is the bookmaker's built-in margin, also called the vig or juice.
- Decimal, American and fractional odds
- Decimal, American and fractional odds are three ways of writing the same price: decimal shows the total return per 1 staked, American shows profit on 100 (or stake needed to win 100), and fractional shows profit relative to stake.
- Moneyline
- A moneyline is a bet on which side wins outright, with no point spread or handicap; in sports with draws it becomes a three-way (1X2) market.
- Point spread (handicap)
- A point spread is a handicap applied to the favourite (or a head start for the underdog) so that both sides of the bet are priced closer to even.
- Totals (over/under)
- A totals market is a bet on whether the combined score (goals, points, runs) lands over or under a line set by the bookmaker.
- Closing line value (CLV)
- Closing line value measures how the price you took compares with the final price before the event starts; consistently getting better prices than the close is a widely used sign of skill.
Strategy and maths
- Expected value (+EV)
- Expected value is the average result per unit staked if the same bet could be repeated many times; a positive-EV (+EV) price is one above your fair-odds estimate.
- Arbitrage (arb)
- Arbitrage is a price gap across venues where the best available odds for every outcome imply a combined probability below 100%, so covering all outcomes locks in the same return whatever happens (at the quoted prices).
- Sure bet (surebet)
- “Sure bet” is industry slang for an arbitrage position: the combination of best prices across bookmakers whose implied probabilities sum to less than 100%.
- Middling (a middle)
- Middling means holding opposite sides of a spread or totals market at two different lines, so that a result landing between the lines wins both sides.
- Hedging
- Hedging is taking an offsetting position to reduce the risk of an existing one, accepting a smaller possible gain in exchange for a smaller possible loss.
- Kelly criterion
- The Kelly criterion is a formula for the fraction of a bankroll to stake that maximises long-run growth, given your probability estimate and the odds; it comes from J. L. Kelly's 1956 paper.
- Brier score
- The Brier score measures the accuracy of probability forecasts as the mean squared difference between the forecast probability and what happened (1 or 0); lower is better and 0 is perfect.
- Calibration
- A forecaster (or market) is well calibrated when events given an X% probability happen about X% of the time over many forecasts.
Industry, regulation and data
- Market maker
- A market maker continuously quotes both a buy and a sell price, earning the spread in return for providing liquidity and absorbing temporary order imbalances.
- Sharp vs soft bookmakers
- Sharp bookmakers run low margins, accept large stakes from professional bettors and move their prices quickly; soft (recreational) bookmakers run wider margins and often limit winning customers.
- Betting exchange
- A betting exchange matches customers who back an outcome with customers who lay it (bet against it), charging commission on net winnings instead of building a margin into the odds.
- CFTC and DCM
- The CFTC (Commodity Futures Trading Commission) is the US regulator of derivatives markets; a Designated Contract Market (DCM) is an exchange the CFTC has authorised to list futures, options and swaps, including event contracts.
- Odds API
- An odds API is a programmatic interface that delivers bookmaker (and often exchange and prediction-market) prices as structured data, so software can compare, store or analyse them.
- WebSocket feed
- A WebSocket feed is a persistent two-way connection (RFC 6455) over which a server pushes updates as they happen, instead of the client repeatedly polling a REST endpoint.
- MCP (Model Context Protocol)
- MCP is an open-source standard for connecting AI applications to external systems, so an assistant such as Claude or ChatGPT can call tools and read data through a common interface.
- Wash trading
- Wash trading is trading with yourself (or a coordinated partner) to create the appearance of activity without taking real market risk; it inflates reported volume and is prohibited under the US Commodity Exchange Act.
About this guide
Pred-Data publishes independent, source-linked explainers about prediction markets and the AI tools used around them. Every factual claim on this page links to a primary or reputable secondary source, checked on the date shown above. We do not run a trading venue, take bets, or give personal advice.
Author: Ken Lin · Corrections: if you spot an error, we review it and date-stamp the fix.
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