Every term you need to know — from arbitrage to YES contracts. Updated June 2026 by Catie Di Stefano.
The practice of exploiting price differences for the same event contract across multiple platforms. If Kalshi prices a contract at 62 cents and DraftKings prices the same event at 58 cents, buying on DraftKings and selling on Kalshi locks in a 4-cent profit (minus fees and execution risk). True risk-free arbitrage is rare — spreads, fees, and execution timing usually reduce or eliminate the edge.
The lowest price at which a seller is willing to sell a contract. Also called the offer. When you place a market order to buy, you pay the ask price. The gap between the ask and the bid is the bid-ask spread.
An algorithm that automatically provides buy and sell quotes for event contracts, ensuring liquidity even when human counterparties are not actively trading. Decentralized platforms like Polymarket use AMM models alongside traditional order books.
The total capital allocated to prediction market trading. Professional traders typically risk no more than 1-5% of their bankroll on any single contract. Managing bankroll discipline is as important as finding good contracts.
The highest price a buyer is willing to pay for a contract. When you place a market order to sell, you receive the bid price.
The difference between the bid (highest buy price) and the ask (lowest sell price). The spread is the primary cost of trading on prediction markets. Tight spreads (1-2 cents) indicate high liquidity. Wide spreads (10+ cents) indicate thin markets where trading is costly.
A contract with exactly two possible outcomes: YES (pays $1) or NO (pays $0). The vast majority of prediction market contracts are binary. The price of a binary contract directly represents the markets probability estimate: a 67-cent contract implies a 67% probability of YES.
A measure of how well prediction market prices track actual probabilities. A well-calibrated market is one where events priced at 70% actually occur approximately 70% of the time. Research consistently shows liquid prediction markets are better calibrated than expert opinion polls.
The US federal agency that regulates derivatives markets, including prediction markets classified as event contracts. Platforms like Kalshi operate as CFTC-licensed Designated Contract Markets (DCMs), placing them under the same federal regulatory framework as futures exchanges like the CME Group.
The worlds largest derivatives exchange, headquartered in Chicago. CME Group provides exchange infrastructure and liquidity for DraftKings Predictions and FanDuel Predicts. CME Group is also the operator of FedWatch.
A multi-leg contract that bundles multiple binary outcomes into a single position, similar to a parlay in sports betting. All legs must resolve YES for the contract to pay out. Kalshis Combos feature allows up to 10 legs across sports and other markets.
The tradable unit on a prediction market. Buying a YES contract means you profit if the specified outcome occurs. Each contract settles at $1 (correct) or $0 (incorrect).
The current market price of a contract, expressed between $0.01 and $0.99. The price directly represents implied probability. A contract at $0.72 means the market estimates a 72% chance of YES.
The CFTC license required to legally operate a federally regulated event contract exchange in the United States. Kalshi was the first platform to receive DCM designation for prediction markets in 2020. Other DCMs include Polymarket US (via QCEX) and ForecastEx (via Interactive Brokers).
A CFTC-registered clearinghouse that guarantees the settlement of trades. Kalshi operates its own DCO (Kalshi Klear), as does Polymarket US. Platforms that lack their own DCO rely on third-party clearing infrastructure.
A key advantage of prediction market contracts over leveraged instruments. Your maximum possible loss on any prediction market contract is exactly the amount you paid. There are no margin calls and no liquidations.
Your advantage over the market — the difference between your estimated probability and the contract price. If you estimate a 60% probability and the contract is priced at 50 cents, you have a 10-percentage-point edge.
The formal regulatory term used by the CFTC for prediction market contracts. Classifying prediction market instruments as event contracts (derivatives) rather than bets (gambling products) is the legal foundation for CFTC jurisdiction.
The probability-weighted average outcome of a trade. For a 40-cent YES contract you estimate at 55% probability: EV = (0.55 × $0.60) − (0.45 × $0.40) = $0.15 per dollar. Positive EV trades are theoretically profitable over many repetitions.
A CFTC-registered intermediary that allows platforms to offer prediction market access without operating their own exchange. Robinhood currently operates as an FCM, routing customer orders through Kalshis DCM infrastructure.
The CME Group tool that derives implied Federal Reserve rate probabilities from federal funds futures prices. Widely referenced by macro traders. Kalshis FOMC markets are frequently cited alongside FedWatch as a complementary probability signal.
The Federal Reserve committee that sets US interest rate policy. FOMC meeting dates are among the most important events for macro prediction market traders. Kalshi lists rate decision contracts for each FOMC meeting.
The probability of an outcome as expressed by a contracts current price. A contract at 67 cents implies 67% probability. Implied probability is the fundamental concept underlying all prediction market trading.
Using material non-public information to trade event contracts. Explicitly prohibited under the Commodity Exchange Act. The CFTC announced in March 2026 it has authority to police insider trading in prediction markets.
A mathematical formula for optimal position sizing given your edge. For a 40-cent contract you estimate at 55% probability, the Kelly fraction is approximately 25% of bankroll. Most professionals use a fractional Kelly (10-25% of full Kelly) to reduce variance.
An order to buy or sell a contract at a specified price or better. Limit orders are posted to the order book and execute only when a counterparty accepts the price.
The ability to enter or exit a position at or near the current market price without significantly moving the price. High liquidity means tight spreads and fast fills. Liquidity is highest on major sports events, FOMC meetings, and major election markets.
A professional or algorithmic participant that continuously provides buy and sell quotes, ensuring traders can always find a counterparty. Market makers earn the spread. Kalshi allocates approximately $35,000 per day in market-making incentives.
An order that executes immediately at the best available price. Market orders guarantee execution but not price — you pay the ask when buying and receive the bid when selling, incurring the full spread cost.
A contract that pays $1 if the specified outcome does NOT occur. Buying NO at 35 cents profits 65 cents if the event fails to happen. NO contracts are equivalent to selling the corresponding YES contract at 65 cents.
The real-time list of all outstanding buy and sell orders for a contract, showing prices and quantities. A deep order book indicates high liquidity. A thin order book suggests difficulty executing large orders without moving the price.
Your active stake in a prediction market contract. Going long YES means you profit if the event occurs. Going long NO means you profit if it does not. You can exit a position before settlement by selling at the current market price.
The process of determining whether a contract pays out at $1 or $0 based on the actual event outcome. Resolution criteria are specified in advance for each contract, typically referencing official data sources.
An IRS tax classification for certain regulated financial instruments that receive favorable 60/40 capital gains treatment (60% long-term, 40% short-term regardless of holding period). Whether prediction market contracts qualify is currently unsettled.
The payout process after event resolution. Winning contracts settle at $1 per contract. Losing contracts settle at $0. Settlement on CFTC-regulated platforms typically occurs within 24-48 hours of event resolution.
The difference between the expected price and the actual execution price, caused by moving through the order book when placing a large order. Slippage is most significant in thin markets.
See Bid-Ask Spread.
A fee charged when you execute a market order (cross the spread). Polymarket US charges a flat 0.10% taker fee. Kalshi embeds fees in the bid-ask spread rather than charging explicit commissions.
A market with limited liquidity, few participants, and wide bid-ask spreads. Thin markets are difficult to trade profitably because the spread cost is high and exiting positions before settlement may be costly.
A contract that pays $1 if the specified outcome DOES occur. Buying YES at 67 cents profits 33 cents if the event happens. YES contract price = implied probability of the event.