Prediction Markets Glossary: Terms Explained in Plain English

There are 35 terms below. Prices in the examples are made up to show the idea. They are not current prices, and nothing here is advice on law, tax or money.

A to D

Ask

The lowest price at which someone is offering to sell a contract right now.

Bid

The highest price someone is offering to pay for a contract right now.

CFTC

The Commodity Futures Trading Commission, the federal agency that oversees U.S. futures, swaps and event-contract exchanges.

DCM (designated contract market)

An exchange designated by the CFTC. Kalshi (since November 3, 2020), QCX LLC, doing business as Polymarket US (July 9, 2025), and ProphetX LLC (June 11, 2026) are designated contract markets. OG trades on North American Derivatives Exchange, Inc., designated in 2004, which also does business as Crypto.com.

DCO (derivatives clearing organization)

A clearing house registered with the CFTC. It stands between buyers and sellers and handles the money at settlement. The CFTC's list includes Kalshi Klear LLC, QC Clearing LLC, doing business as Polymarket Clearing (registered December 16, 2024), and ProphetX LLC (registered June 10, 2026).

E to I

Edge

The difference between your own estimate of a probability and the market's price. It is an opinion, and it can be wrong.

Event contract

A contract that pays out based on whether a real-world event happens, for example who wins a game or what the Federal Reserve decides.

Exchange

A marketplace where traders buy from and sell to each other. The exchange matches orders and charges a fee. It does not take the other side of your trade. See how prediction markets work.

Expected value (EV)

The average result of a trade if you could repeat it many times. Example: if you believe an event has a 50% chance and the price is 40 cents, the trade has positive expected value before fees, by your estimate only.

Fee on net gains

A fee taken only when a market ends in a net gain for you. ProphetX charges a 2% trading fee on net gains per market on straight trades (fee page version 1.3, October 12, 2026).

Geofencing

Blocking access based on where you are physically located. Kalshi agreed to geofence Nevada by August 12, 2026, and court orders in Washington and Michigan also require it to geofence the contracts they cover.

Implied probability

The price read as a chance. Example: 40 cents implies about a 40% chance. Our guide on how to read prediction market prices has more.

Interim final rule

A federal rule issued in final form before public comment, which takes effect when it is published in the Federal Register. On October 9, 2026 the CFTC issued one on the definition of "swap". It had not been published when we checked on October 13, 2026, so it was not in effect.

L to O

Limit order

An order that names the worst price you will accept. It fills right away if a matching order is already there at that price or better, and any unfilled part rests on the order book until someone takes it or you cancel it.

Liquidity

How much can be traded near the current price without moving it.

Maker

The trader whose resting order is filled by someone else. On Polymarket US, orders that rest on the book pay no fee; rebates on them are limited to very high-volume traders from October 19, 2026. Some Kalshi markets charge a maker fee, taken only when the order is filled.

Market order

An order that fills right away at the best price available. On a thin contract it can fill at a worse price than you expected.

Minimum deposit

The smallest amount a platform lets you add by a given method. It differs by platform and method. Our Kalshi deposit and withdrawal guide lists current figures for Kalshi.

Order book

The live list of buy orders and sell orders at each price.

P to R

Parlay (combo)

One contract that combines several outcomes. All of them must happen for it to pay. ProphetX charges parlays under a separate fee schedule, and Polymarket US uses a separate taker fee curve for combos.

Payout and profit

Example: you buy 10 Yes contracts at 40 cents, which costs $4. If the event happens they settle at $10, a $6 profit before fees. If it does not, they settle at $0.

Position sizing

How much of your budget you put into one contract. Small, fixed amounts are the safer habit for most people.

Preemption

The legal question behind the state lawsuits: whether federal commodities law overrides state gambling law for sports event contracts. Federal appeals courts are split. The Third Circuit sided with Kalshi on April 6, 2026. The Ninth Circuit (August 28, 2026) and the Sixth Circuit (September 25, 2026) sided with the states. Kalshi asked the full Sixth Circuit to rehear the case on October 9, 2026; the court has not ruled. Three Supreme Court petitions (Nos. 26-299, 26-338 and 26-344) are pending and none has been granted.

Price

What a contract costs today, between 1 and 99 cents. Example: a Yes price of 40 cents means you pay 40 cents to receive $1 if the event happens.

S to Y

Section 1256

A U.S. tax rule that treats gains and losses on certain contracts as 60% long-term and 40% short-term. It names regulated futures contracts, foreign currency contracts and certain options, and it excludes a list of swaps. It does not mention event contracts, so do not assume it applies. Ask a tax professional and read our prediction market taxes guide.

Self-certification

How exchanges list most new contracts: they certify to the CFTC that the contract meets the rules, instead of waiting for approval of each one. CFTC staff issued an advisory on self-certifying event contract series on July 24, 2026.

Settlement (resolution)

The moment the outcome is known and each contract pays $1 or $0 under the contract's written rules. Read the rules for the exact source and cut-off time.

Spread

The gap between the bid and the ask. A narrow spread usually means it costs less to get in and out.

Status words

The labels we use for a platform in a state: Available; Available — dispute pending; Sports contracts blocked by court order; or Not offered. They describe access on a given date. They are not legal advice.

Swap

A type of derivative overseen by the CFTC. On October 9, 2026 the CFTC issued an interim final rule saying casino-style gambling products, including sportsbook wagers and casino games, fall outside the definition, and proposed a rule that would write event contracts on sports, politics, culture and weather into it. Neither had been published in the Federal Register when we checked on October 13, 2026, so neither was in effect, and the proposal is not final.

Sweepstakes app

A different model from an exchange. Rebet, for example, describes itself as a social sportsbook with Rebet Coins and Rebet Cash and says it does not offer real-money gambling. It is not a CFTC exchange.

Taker

The trader whose order fills straight away against a resting order. Since October 2026 Polymarket US charges a taker fee on orders that fill straight away, worked out from the price: on standard markets it is highest for contracts near 50 cents (about $1.74 per 100 contracts) and falls toward 1 cent and 99 cents. Orders that rest on the book pay no fee; rebates on them are limited to very high-volume traders from October 19, 2026.

Transaction fee

A fee charged when a trade executes. Kalshi charges a transaction fee based on the expected earnings of the contract. Some Kalshi markets also charge a maker fee on resting orders, taken only when the order is filled. The order ticket shows the fee before you confirm.

Welcome offer

A new-user bonus. The states where an offer is valid describe the bonus only. They do not tell you where a platform operates or what state law says.

YES/NO contract

The basic form of an event contract. A contract on the correct side settles at $1 and the other side settles at $0.

Where can you put these terms to use?

Kalshi leads our list for a general account: Trade $25 and Get $25! with code WINPREDICTS, valid in 47 states + D.C. ProphetX is built around sports; it has also certified election contracts with the CFTC (September 2, 2026). New users: Trade $50, Earn $75! with code WINPREDICTS, valid in 49 states + D.C. (per the partner's offer terms, checked October 14, 2026). Only filled trades that open a position at $0.80 or below count toward the $50. The $75 comes as three $25 installments: the first within 24 hours of qualifying, and the second and third on day 7 and day 14 only if the previous $25 was fully used on new positions at $0.80 or below. Otherwise they are forfeited. Offer terms apply.

OG: Trade $25 Get $25 in Rewards! (New users only) with code WINPREDITCS, valid in 42 states + D.C. Polymarket US: Deposit $10 get a $25 Trading Bonus! with code WIN, valid in 49 states + D.C. Offer terms apply. The state counts are each partner's own, checked October 14, 2026.

Kalshi's minimum age is 18. ProphetX's is 18, or the local age of majority if higher. We recommend 21+. Our platform comparison covers each one in more detail. Trade only what you can afford to lose.

Can you trade in your state?

It depends on the state and the platform. As of October 13, 2026, Kalshi's sports contracts are blocked by court order in three states: Nevada, Michigan and Washington. Elsewhere the law is unsettled. Federal appeals courts have split on sports event contracts: the Third Circuit sided with Kalshi on April 6, 2026, and the Ninth Circuit (August 28, 2026) and the Sixth Circuit (September 25, 2026) sided with the states. Three Supreme Court petitions (Nos. 26-299, 26-338 and 26-344) are pending and none has been granted. Where a platform still takes customers in a state with an open case, we call the status Available — dispute pending. The sign-up screen is the final word for your state.

Frequently asked questions

What does a 40-cent price mean on a prediction market?

You pay 40 cents per contract. It settles at $1 if the event happens and $0 if it does not, so the price implies about a 40% chance.

What is the difference between a maker and a taker?

A maker's resting order is filled by someone else. A taker's order fills straight away against a resting order. Exchanges often charge the two differently, and some charge makers nothing.

What do DCM and DCO mean?

A DCM, or designated contract market, is an exchange designated by the CFTC. A DCO, or derivatives clearing organization, is a clearing house registered with the CFTC that handles the money at settlement.

Are the CFTC swap rules of October 2026 in effect?

Not as of October 13, 2026. The CFTC issued an interim final rule and a proposed rule on October 9, 2026. Neither had been published in the Federal Register when we checked, and the proposed rule is not final.

Is Rebet a prediction market exchange?

No. Rebet is a social sweepstakes app that uses Rebet Coins and Rebet Cash. It is not a CFTC exchange.

Are event contracts taxed under Section 1256?

Do not assume so. Section 1256 gives 60/40 treatment to regulated futures contracts and a few other contract types, excludes a list of swaps and does not mention event contracts. Ask a tax professional.