Market Fundamentals Glossary

Binary Market

A binary market is a prediction market in which exactly two mutually exclusive outcomes are possible, typically labeled YES and NO, with one contract paying $1.00 and the other paying $0.00 at resolution. It is the most common market structure on platforms like Kalshi and Polymarket.

Categorical Market

A categorical market is a prediction market that lists three or more mutually exclusive discrete outcomes, where exactly one outcome pays $1.00 at resolution and all others pay $0.00. Common examples include multi-candidate elections, tournament winners, or central bank decisions with several possible rate options.

Contract Price

The contract price is the current market price of a single prediction market share, expressed as a value between $0.00 and $1.00, which simultaneously represents the cost to enter the position and the crowd's probability estimate for that outcome.

Event Contract

An event contract is a financial derivative whose value is determined by the outcome of a specified real-world event, paying a fixed amount if the defined outcome occurs and nothing if it does not. Event contracts are the core tradable instrument on prediction market platforms.

Information Aggregation

Information aggregation is the process by which prediction market prices synthesize dispersed private knowledge held by many participants into a single, publicly observable probability estimate. The financial incentive to profit from superior information causes traders to reveal their beliefs through trades, making prices increasingly accurate over time.

Prediction Market

A prediction market is an exchange where participants buy and sell contracts tied to the outcomes of future real-world events, with prices reflecting the crowd's collective probability estimate. Unlike traditional financial markets, the underlying asset is an event outcome rather than a company or commodity.

Prediction Market vs. Sportsbook

A prediction market is a peer-to-peer exchange where traders buy and sell event contracts at market-determined prices, while a sportsbook is a house-operated betting platform that sets its own odds and takes the other side of every wager. The two structures differ in regulation, pricing, event coverage, and who bears risk.

Price as Probability

Price as probability is the core interpretive principle of prediction markets: because a winning contract always pays exactly $1.00, the current market price of a contract (expressed in dollars) equals the crowd's collective probability estimate for that outcome occurring.

Scalar Market

A scalar market is a prediction market that resolves to a specific numerical value within a predefined range rather than a simple yes-or-no outcome, with payouts allocated proportionally based on where the resolved figure falls between the upper and lower bounds.

Yes/No Shares

Yes/No shares are the two complementary tokens minted for each binary prediction market, where YES shares pay $1.00 if the event resolves affirmatively and NO shares pay $1.00 if it does not. Together, one YES share and one NO share always settle for a combined total of $1.00.