Prediction Markets Glossary
Every term you need to trade prediction markets confidently. Each definition links to the tools and articles that use it.
Quick Answer
A prediction market is an exchange where you trade contracts on the outcome of a real-world event — politics, economics, sports, or weather. Each contract settles at $1 if the event happens and $0 if it doesn’t, so its price in cents (1–99¢) reads directly as the market’s implied probability: a contract at 63¢ means the market prices that outcome at about 63%. You can buy Yes or No and exit before the event resolves. The terms below define the rest.
Prediction Market
An exchange where you buy contracts that resolve to $1 if an event occurs, $0 if not.
A prediction market is an exchange where participants trade contracts that resolve to a fixed payout — typically $1 — if a future event occurs, and $0 if it does not. The live contract price, usually quoted in cents, represents the market-implied probability of the event. Kalshi is CFTC-regulated; Polymarket is blockchain-based. Both allow traders to take positions on verifiable outcomes across politics, economics, sports, and world events.
Expected Value (EV)
The average outcome of a trade weighted by probability — positive EV means the market underestimates the event.
Expected value is the probability-weighted average profit of a trade. For a prediction market contract, EV = (your probability × payout) − (1 − your probability) × cost. Positive EV means the market price underestimates the true probability relative to your estimate, signaling a trade worth taking. Negative EV trades lose money over time no matter how good they feel. The EV Calculator quantifies this instantly.
Kelly Criterion
A formula for optimal position sizing that maximizes long-run growth without risking ruin.
The Kelly Criterion is a position-sizing formula that outputs the optimal fraction of bankroll to risk given your edge and payout odds. Full Kelly maximizes long-run growth but carries significant variance. Most professional traders use half or quarter Kelly to dampen drawdowns. Kelly without a confirmed positive EV signal will size you into losing trades — always check EV first.
Implied Probability
The probability the market price implies — on Kalshi, a contract at 65¢ implies 65% probability.
Implied probability is the event probability that a contract's price implies. On Kalshi, the cent price equals the implied probability directly — a contract at 42¢ implies a 42% chance of YES resolution. You can convert between Kalshi prices, American odds, decimal odds, and fractional odds using the Probability Converter.
DAEPA (Defense-Adjusted Expected Points Added)
PMP's per-play NFL efficiency metric — expected points added, adjusted for opponent quality. The input PWR is built from.
DAEPA — Defense-Adjusted Expected Points Added — is the foundation metric in PredictionMarketsPicks' Gridiron Edge NFL model. It measures offensive, defensive, and special-teams EPA adjusted for opponent quality, then rolls up into the team power rating, PWR. Across a 2013–2024 walk-forward backtest of 3,266 games with no market line among the inputs, DAEPA graded 59.6% straight-up win-prediction accuracy, rising to 71.5% on the games where it flags an edge above 20%. Game Edges, Player Projections, and Futures all derive from DAEPA outputs.
PWR (Power Rating)
A team’s rating in points per game above an average team on a neutral field.
PWR is PredictionMarketsPicks' canonical NFL team rating: points per game above an average team on a neutral field. A team at PWR +3.5 is expected to win by about 3.5 points on a neutral field against a PWR 0 opponent. PWR = Off PR + Def PR + ST PR — offense, defense and special teams, each built from DAEPA and each expressed on the same points-per-game scale, so the three add directly. Tiers translate PWR into plain English: Elite ≥+7, Contender ≥+4, Playoff ≥+1, Average ≥−2, Below Avg ≥−5, Rebuild <−5. PWR replaced the retired Gridiron Edge Rating (GER), which summed the same components on a z-score scale and so weighted special teams equal to offense.
Oracle Consensus
The aggregate confidence score across The 7 Oracles' models and analysts for a given market.
Oracle Consensus is the internal scoring system that blends signals from The 7 Oracles' quantitative models, cross-platform price divergence, news-driven analysis, and analyst conviction. A high-consensus signal is one where multiple independent inputs agree that the market is mispriced. It is one of the inputs to the Mispricing Scanner and the daily Play of the Day.
Theta Edge
The time-decay opportunity in prediction markets — contracts near expiry must converge to 0 or 100.
Theta edge is the time-decay profile of a prediction market contract. As a market approaches its resolution date, contracts priced far from 0¢ or 100¢ experience accelerating price convergence toward the true outcome. A contract trading at 50¢ with 48 hours remaining has enormous theta — it must resolve to either 0 or 100 by expiry. The Theta Edge tool identifies contracts in this sweet spot: near expiry, genuinely uncertain, and high implied movement.
Market Mispricing
A persistent gap between model probability and market price — a durable edge to exploit.
A market mispricing is a sustained divergence between independent probability estimates and the market price. Unlike short-lived news-driven gaps, mispricings can persist for days or weeks because they reflect structural biases in the crowd — anchoring on round numbers, overweighting recent narratives, or failing to incorporate base rates. The Mispricing Scanner runs daily to surface these opportunities on Kalshi and Polymarket.
Arbitrage (Arb)
A guaranteed-profit price gap for the same event across two different platforms.
Prediction market arbitrage occurs when the same event is priced differently across two venues. Buying YES on one side and the equivalent NO on the other pays exactly $1.00 either way, so the position locks in a profit when the combined cost — INCLUDING FEES — comes in under $1.00. Fees are what usually decide it: Kalshi charges 0.07 × P × (1−P) per contract, about 1.75¢ at 50¢, so roughly 3.5pp of round-trip cost across two legs. True risk-free arb is rare and closes quickly; statistical arb (persistent venue divergence) is more common. The Arb Scanner monitors Kalshi vs. Polymarket.
Bayes' Theorem
The math for updating a probability estimate when new evidence arrives.
Bayes' Theorem formalizes how to update your probability estimate as new evidence emerges. Start with a prior (your initial estimate), observe new evidence, compute a posterior probability that reflects both. In prediction markets, this tells you whether a news event should move your position and by how much. The Bayes Updater automates the calculation.
Base Rate
The historical frequency of an event — the starting prior before new evidence.
A base rate is the historical frequency of an event across comparable prior instances. Most traders overweight recent narratives and underweight base rates, which creates persistent market mispricings. Economic and political markets tend to have the strongest base-rate signals because the underlying historical data is extensive and public. Use the Base Rate Scanner to surface these opportunities.
KL-Divergence
An information-theory measure of how far two probability distributions diverge.
KL-Divergence (Kullback-Leibler Divergence) measures how different two probability distributions are. In prediction markets, it quantifies how far your probability estimate deviates from the market's implied probability across a full distribution, not just a single point. High KL-Divergence means your model sees the market as significantly mispriced.
Position / Contract / Trade
PredictionMarketsPicks terminology — we say position/contract/trade, not bet/wager.
Throughout PredictionMarketsPicks, we use market-native terminology: position (what you hold), contract (what you buy), trade (the act of entering or exiting). Prediction markets are regulated exchanges trading binary event contracts — not sportsbooks. This terminology reflects the structure and the legal status of the markets.
Unpriced Signal
When news, data, or a model output suggests an event's probability has changed — but the market hasn't moved yet.
An unpriced signal is a time-sensitive divergence between information and market price. The signal engine monitors RSS news clusters, DAEPA model outputs, and live Kalshi + Polymarket prices, then flags contracts where the evidence and the price are out of sync. Unlike persistent mispricings, unpriced signals typically close within hours — they're the fastest-decay edges on the site.
Kalshi
A CFTC-regulated U.S. prediction market exchange.
Kalshi is a federally regulated event contracts exchange operating under CFTC oversight. As a regulated commodity exchange, it is broadly legal for U.S. residents without state-by-state sports betting licensing. Markets include politics, economics (Fed rates, inflation, GDP, jobs), climate, sports, and world events. The site references Kalshi via api.elections.kalshi.com and includes a referral partnership.
Polymarket
A decentralized prediction market built on the Polygon blockchain.
Polymarket is a decentralized prediction market running on the Polygon blockchain. Following CFTC settlements, Polymarket expanded U.S. access in 2024–2025. The site references Polymarket via the Gamma API (gamma-api.polymarket.com) for price and volume data. Polymarket markets tend to have deeper liquidity on political and macro events than Kalshi.
Common Questions
What is a prediction market?
A prediction market is an exchange where participants trade contracts that resolve to a fixed payout — typically $1 — if a future event occurs, and $0 if it does not. The live contract price, usually quoted in cents, represents the market-implied probability of the event. Kalshi is CFTC-regulated; Polymarket is blockchain-based. Both allow traders to take positions on verifiable outcomes across politics, economics, sports, and world events.
What is expected value in prediction markets?
Expected value is the probability-weighted average profit of a trade. For a prediction market contract, EV = (your probability × payout) − (1 − your probability) × cost. Positive EV means the market price underestimates the true probability relative to your estimate, signaling a trade worth taking. Negative EV trades lose money over time no matter how good they feel. The EV Calculator quantifies this instantly.
What is the Kelly Criterion?
The Kelly Criterion is a position-sizing formula that outputs the optimal fraction of bankroll to risk given your edge and payout odds. Full Kelly maximizes long-run growth but carries significant variance. Most professional traders use half or quarter Kelly to dampen drawdowns. Kelly without a confirmed positive EV signal will size you into losing trades — always check EV first.
What is DAEPA in the Gridiron Edge NFL model?
DAEPA — Defense-Adjusted Expected Points Added — is the foundation metric in PredictionMarketsPicks' Gridiron Edge NFL model. It measures offensive, defensive, and special-teams EPA adjusted for opponent quality, then rolls up into the team power rating, PWR. Across a 2013–2024 walk-forward backtest of 3,266 games with no market line among the inputs, DAEPA graded 59.6% straight-up win-prediction accuracy, rising to 71.5% on the games where it flags an edge above 20%. Game Edges, Player Projections, and Futures all derive from DAEPA outputs.
What is an unpriced signal?
Throughout PredictionMarketsPicks, we use market-native terminology: position (what you hold), contract (what you buy), trade (the act of entering or exiting). Prediction markets are regulated exchanges trading binary event contracts — not sportsbooks. This terminology reflects the structure and the legal status of the markets.
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