Key Concepts
Before you start trading, familiarize yourself with these essential terms and concepts. Understanding the vocabulary will help you navigate platforms, read market data, and make better decisions.
Terminology may vary slightly between platforms. I note platform-specific terms where applicable. Definitions are based on common industry usage and official platform documentation.
Core Trading Terms
Shares
Shares are the tradable units in a prediction market. Each market typically has Yes shares and No shares.
- Yes shares pay $1 if the event occurs
- No shares pay $1 if the event does not occur
When you buy shares, you are taking a position on the outcome.
Position
Your position is the total shares you own in a market.
- Long position: You own shares and profit if the price rises (or if the event resolves in your favor)
- Short position: Some platforms allow shorting, where you profit if the price falls
Your position has a value based on current market prices and becomes final at resolution.
Order Book
The order book displays all open buy and sell orders for a market.
- Bids: Buy orders (what buyers will pay)
- Asks: Sell orders (what sellers want)
- Spread: The gap between the best bid and best ask
A deep order book with many orders at various prices indicates good liquidity.
Spread
The spread is the difference between the best bid (highest buy order) and best ask (lowest sell order).
- Narrow spread (e.g., $0.01): Easy to trade, low cost
- Wide spread (e.g., $0.10): Harder to trade, higher cost
The spread represents the cost of immediately entering or exiting a position.
Liquidity
Liquidity measures how easily you can buy or sell without significantly moving the price.
- High liquidity: Large orders execute without major price impact
- Low liquidity: Even small orders can move the price significantly
High-profile markets (elections, Fed decisions) typically have better liquidity than niche markets.
Resolution
Resolution is when a market closes and the outcome is determined.
- Winning shares pay out $1
- Losing shares pay out $0
- Resolution follows predefined rules and sources
Order Types
Market Order
Executes immediately at the best available price. Use when speed matters more than exact price. May experience slippage in illiquid markets.
Limit Order
Executes only at your specified price or better. Use when you want a specific price and can wait. May not fill if the market moves away.
Maker Order
Adds liquidity to the order book. You wait for someone to trade against your order. Often has lower fees.
Taker Order
Removes liquidity from the order book. You trade against existing orders. Often has higher fees.
Price and Probability
Implied Odds
You can also think of prices in terms of odds:
| Price | Probability | Implied Odds |
|---|---|---|
| $0.20 | 20% | 4:1 against |
| $0.50 | 50% | 1:1 (even) |
| $0.80 | 80% | 4:1 in favor |
Finding Value
If you believe an event has a 70% chance of occurring but the market prices it at 50% ($0.50), you might consider buying Yes shares. This is the core of prediction market trading: finding disagreements between your estimate and the market's estimate.
Position Management
When you buy shares, you open a position:
- Choose the market you want to trade
- Decide whether to buy Yes or No
- Set your order type (market or limit)
- Specify the amount you want to trade
- Review and confirm
Your position appears in your portfolio immediately after the trade executes.
Fees Explained
| Fee Type | Polymarket | Kalshi |
|---|---|---|
| Maker Fee | 0% | 0% |
| Taker Fee | ~2% | ~1.5% |
| Deposit Fee | 0% (card partner fees apply) | 0% ACH, 2.9% card |
| Withdrawal Fee | ~$0.01 gas | $0 ACH, $25 wire |
| Minimum Trade | ~$1 | $1 |
Fees as of January 2025. Subject to change. Sources: Polymarket, Kalshi
Fee Comparison
Polymarket has 0% maker fees, making limit orders free. Kalshi charges approximately 1.5% per trade regardless of order type. For active traders, these fee differences significantly impact returns.
Risk Terms
Understanding risk is critical for responsible trading:
Market Risk is the possibility that the event resolves against your position. Even if the market prices an event at 90% probability, there is still a 10% chance you lose.
Liquidity Risk is the difficulty of exiting a position. Illiquid markets have wide spreads and limited order book depth. You may be unable to sell at a reasonable price.
Platform Risk is the possibility that something goes wrong with the platform itself. This includes technical failures, regulatory issues, or (for unregulated platforms) potential fraud.
Resolution Risk is the possibility that a market resolves unexpectedly due to ambiguous rules, disputed outcomes, or edge cases not covered by the resolution criteria.
Platform-Specific Terms
- USDC: The stablecoin used for trading (pegged to $1)
- Polygon: The blockchain network Polymarket runs on
- UMA Oracle: The system used to resolve markets
- Wallet: Your crypto wallet (MetaMask, Coinbase Wallet, etc.)
- Bridge: Moving funds from Ethereum to Polygon
Quick Reference Card
Next Steps
Now that you understand the terminology, compare platforms to choose where you will trade:
Choosing a Platform
Compare Polymarket vs Kalshi to find the right fit for you
Your First Trade
Step-by-step guide to making your first trade