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Glossary of Prediction Market Terms

This glossary provides definitions for key terms related to prediction markets, DeFi, and blockchain-based forecasting platforms. Understanding these terms will help you navigate the prediction market landscape more confidently.

Prediction Market Fundamentals​

Arbitrage​

A trading strategy that exploits price differences between different markets or platforms to make a risk-free profit.

Event Resolution​

The process by which a prediction market determines the outcome of a market once the event has occurred. This is often handled by oracles or predefined data sources.

Liquidity​

The availability of funds in a market, allowing participants to easily buy and sell shares without significantly impacting prices.

Market Maker​

An entity or individual that provides liquidity to prediction markets by continuously offering to buy and sell shares, ensuring smooth trading.

Market Settlement​

The finalization of a market when the event outcome is confirmed and payouts are distributed to winning participants.

Oracles​

Services that provide real-world data to smart contracts, enabling automated and trustworthy event resolution in prediction markets.

Outcome Shares​

Units representing the probability of a specific event occurring, which can be bought or sold within a prediction market.

Market Participation and Trading​

Binary Market​

A market structure with two possible outcomes, such as “Yes” or “No” for an event.

Market Efficiency​

The degree to which prediction markets accurately reflect all available information in their pricing.

Trading Volume​

The total number of shares traded in a given prediction market, indicating the level of participation and liquidity.

Risk and Security Considerations​

Slippage​

The difference between the expected price of a trade and the actual executed price, often occurring in low-liquidity markets.

Volatility​

The degree of fluctuation in the price of outcome shares, influenced by new information and market sentiment shifts.

Governance and Platform-Specific Terms​

Decentralized Reputation Oracle​

A decentralized oracle structure where decision-making power is distributed among key individuals or community members that have a reputation to loose, rather than a central authority.

Fee Structure​

The set of charges applied to trading, market creation, or liquidity provisioning in a prediction market platform.

Tokenized Shares​

Blockchain-based representations of outcome shares that can be traded, transferred, or used in DeFi applications.

Automated Market Maker (AMM)​

A decentralized trading mechanism that facilitates prediction market trading through liquidity pools rather than traditional order books.

Understanding these terms will help users engage more effectively in prediction markets while managing risks and maximizing opportunities.