Prediction Market Glossary
Plain-language definitions for every concept you need to trade prediction markets. Real examples, concrete numbers, and relevant CLI commands.
63 terms across 5 categories
Foundational prediction market concepts
Binary Contract
A binary contract is a financial instrument that pays out a fixed amount (typically $1) if a specified condition is met, and nothing otherwise. Prediction markets are built on binary contracts.
sf market KXRECSSNBER-26Contract Expiration
Expiration is the date and time by which a prediction market contract must resolve. If the event has not occurred by expiration, the contract settles to $0 for Yes holders and $1 for No holders.
Event Contract
An event contract is a type of binary contract tied to a specific real-world event with a defined resolution date. Unlike perpetual financial instruments, event contracts have a built-in expiration.
sf event KXFEDRATE-26JUNMarket Maker
A market maker is a participant who continuously provides both buy (bid) and sell (ask) orders on a prediction market, earning the spread in exchange for providing liquidity to other traders.
sf depth KXRECSSNBER-26Open Interest
Open interest is the total number of outstanding contracts in a prediction market that have been traded but not yet settled. It measures how many contracts are currently being held by traders.
sf market KXWTIMAX-26DEC31-T100Outcome Probability
In a prediction market, the price of a contract directly represents the market's consensus estimate of the probability of that outcome occurring. A contract at $0.72 implies a 72% probability.
sf scan --min-edge 5Prediction Market
A prediction market is an exchange where participants trade contracts whose payoff depends on the outcome of future events. The price of a contract reflects the crowd's aggregate estimate of the event's probability.
sf marketsResolution Criteria
Resolution criteria are the specific, pre-defined rules that determine how a prediction market contract settles. They specify the data source, measurement method, and exact conditions for a Yes or No outcome.
sf market KXCPI-26MAR-T3.5Settlement
Settlement is the process by which a prediction market contract is resolved to its final value — either $1.00 (Yes) or $0.00 (No) — once the outcome of the underlying event is determined.
Trading Volume
Trading volume is the total number of contracts traded in a given time period. High volume indicates active interest and typically correlates with tighter spreads and better liquidity.
sf scan --sort volumeExecution, pricing, and position management
Bid and Ask Prices
The bid price is the highest price a buyer is currently willing to pay for a contract. The ask price is the lowest price a seller is currently willing to accept. Together they define the tradeable price range.
sf market KXGDP-26Q2-T2.0Bid-Ask Spread
The bid-ask spread is the difference between the highest price a buyer will pay (bid) and the lowest price a seller will accept (ask). It represents the cost of trading immediately.
sf depthCost Basis
Cost basis is your average entry price across all purchases of the same contract. If you buy 100 contracts at 28 cents and 100 more at 32 cents, your cost basis is 30 cents.
Edge
Edge is the difference between the market price of a prediction market contract and your estimated true probability. Positive edge means you believe the contract is mispriced in your favor.
sf edgesExecutable Edge
Executable edge is edge that can actually be traded — meaning the market has sufficient liquidity, tight enough spreads, and low enough fees for you to profitably capture the mispricing.
sf edges --min-edge 5Limit Order
A limit order is an instruction to buy or sell a contract at a specified price or better. Unlike market orders, limit orders guarantee your price but not execution — your order only fills if the market reaches your price.
sf strategiesLiquidity
Liquidity is the ease with which you can buy or sell a prediction market contract without significantly affecting its price. Liquid markets have tight spreads, deep orderbooks, and high trading volume.
sf scanLiquidity Score
A liquidity score is a composite rating (typically A through D) that grades a market's tradeability based on spread, orderbook depth, recent volume, and historical fill rates.
sf edges --min-liquidity BMarket Depth
Market depth is the total quantity of resting orders at each price level in the orderbook. Deep markets can absorb large trades with minimal price impact; shallow markets cannot.
sf depthMarket Order
A market order is an instruction to buy or sell immediately at the best available price. It guarantees execution but not price — you may experience slippage in thin markets.
Orderbook
An orderbook is a real-time list of all outstanding buy and sell orders for a prediction market contract, organized by price level. It shows the supply and demand at every price point.
sf depth KXCPI-26MAR-T3.5Position Sizing
Position sizing determines how many contracts to buy based on your edge size, confidence level, and bankroll. The Kelly criterion is the mathematically optimal approach: bet a fraction of your bankroll proportional to your edge.
sf strategiesSlippage
Slippage is the difference between the expected execution price and the actual price at which a trade fills. It occurs when you trade larger quantities than available at the best price.
sf depthStop Loss
A stop loss is a pre-defined exit condition that closes your position when the price moves against you past a threshold. In prediction markets, stops can be based on price, thesis confidence, or causal node changes.
sf strategiesTake Profit
A take-profit level is a pre-defined exit condition that closes your position when the price reaches your target. It locks in gains before the market can reverse.
sf strategiesThesis building, causal models, and edge detection
Calibration
Calibration measures how accurate probability estimates are over time. A well-calibrated forecaster or market has events priced at 70% actually occurring about 70% of the time.
Causal Tree
A causal tree is a structured probabilistic model that breaks down a complex event into a hierarchy of independent, verifiable sub-conditions. Each node has a probability, and the tree computes the overall probability of the root event.
sf thesis view --treeCliff Risk Index (CRI)
The cliff risk index measures how fast a binary prediction-market contract is approaching resolution, defined as the absolute price velocity multiplied by the days remaining: CRI = |Δp/Δt| × τ. High CRI flags markets that are actively deciding; low CRI flags markets that are stuck.
sf scan --by-cri descContagion Velocity Rate (CVR)
Contagion Velocity Rate measures how quickly a thesis priced into one prediction-market contract propagates to its semantic neighbors, computed as the lag in hours between a 5¢ move on a parent contract and an equivalent move on a related contract from the same event family. Low CVR means a thesis is spreading fast; null CVR (the common case) means the contract has no detected siblings and the thesis is uncontaminated by neighboring price action.
sf scan --by-cvr asc --warmCross-Venue Analysis
Cross-venue analysis compares pricing of equivalent events across different prediction market platforms (like Kalshi and Polymarket) to find arbitrage opportunities or the best execution venue.
sf cross-venueCycle Clustering (CYC)
Cycle Clustering is the process of grouping prediction-market contracts that belong to the same recurring event family using a fixed set of nine slug regex patterns. CYC turns the universe of 47,000 isolated contracts into ~2,500 connected event families, which is the prerequisite for computing yield curves, cross-sibling overround, and contagion velocity. Roughly 41.4% of markets get assigned to a family; the remaining 58.6% are events that do not fit any of the nine patterns and are handled separately.
sf cycle list --min-members 2Edge Detection
Edge detection is the systematic process of scanning prediction markets to find contracts where the market price diverges from your thesis-implied fair value by more than the cost of execution.
sf edgesEvaluation Cycle
An evaluation cycle is the automated process by which the agent reviews new signals, updates causal tree probabilities, recalculates edge, and determines whether any strategy conditions are met.
sf thesis evaluateEvent Overround (EE)
Event overround is the sum of YES prices across all mutually exclusive outcomes in a single prediction-market event, minus one: EE = Σpᵢ − 1. A clean market gives EE = 0. Positive EE means the outcomes collectively overstate certainty (sell-side arbitrage). Negative EE means the outcomes collectively understate it (buy-side arbitrage).
sf scan --by-overroundExpected Edge
Expected Edge is the composite signal that survives all four indicator gates in sequence: implied yield above the floor, cliff risk index above the floor, event overround inside a defensible band, and τ-days inside the tradable window. Expected Edge is not a single number but the *output* of the gate sequence — a contract either passes all four and is "expected edge positive," or it fails one and is excluded. The composition rule is hierarchical because the gates are not independent.
sf scan --expected-edgeHeartbeat
The heartbeat is the automated monitoring engine that periodically scans for new information, runs evaluation cycles, and triggers strategy actions. It keeps your thesis alive and responsive 24/7.
sf heartbeat statusImplied Return
Implied return is the expected profit as a percentage of capital invested, calculated from the edge and the contract price. It converts edge points into a return metric traders can compare across opportunities.
sf edges --sort returnImplied Yield (IY)
Implied yield is the annualized return a binary prediction-market contract pays if held to expiry, computed as IY = (1/p)^(365/τ) − 1, where p is the YES price (0–1) and τ is days to resolution. It converts a binary mid-price into the same units fixed-income traders use for treasuries.
sf scan --by-iy descLiquidity Availability Score (LAS)
Liquidity Availability Score is a per-market scalar that captures whether a prediction-market orderbook is thick enough to actually trade against, computed as the sum of bid depth and ask depth scaled by the bid-ask spread. LAS is null on roughly 99% of markets, because the warm-regime cron only computes it for the top 500 by 24-hour volume — and that null is itself the most useful signal LAS produces.
sf scan --by-las desc --warmMean Reversion
Mean reversion is the tendency for prediction market prices to return toward their long-term average after temporary spikes or drops caused by overreaction to news events.
Node Probability
Node probability is the estimated likelihood assigned to a specific node in a causal tree. Changes to leaf node probabilities cascade upward through the tree, updating the root probability and all derived edge calculations.
sf thesis view --treePosition-Implied Velocity (PIV)
Position-Implied Velocity is the rate at which positions are being added or removed on a prediction-market contract, derived from the count of 1¢ price-delta events recorded in the market_indicator_history table over a 7-day rolling window. PIV is the substrate metric that separates a contract that is being actively traded from one whose price moves come from a single posted quote and stale fills.
sf scan --by-iy desc --min-piv 10Risk Concentration
Risk concentration measures how much of your portfolio depends on the same underlying thesis or event. Correlated positions amplify both gains and losses, creating hidden portfolio risk.
sf portfolio riskSignal
A signal is any piece of new information that could affect a thesis — a news article, a price movement, a data release, a user note, or an external webhook event. The agent evaluates signals against the causal tree.
sf signalsThesis
A thesis is a structured investment argument that combines a directional view, a causal model of why the view is correct, and specific market positions that express the view. In SimpleFunctions, a thesis is the core unit of analysis.
sf thesis createThesis Confidence Score
Confidence is a 0-100% score that measures how certain you are about your probability estimates, not the probability itself. High confidence means your estimates are well-researched; low confidence means they're speculative.
sf thesis viewThesis-Implied Price
The thesis-implied price is the probability a contract should trade at according to your causal tree model. The difference between thesis-implied price and market price is your edge.
sf edgesWhat-If Analysis
What-if analysis (scenario analysis) lets you explore how your thesis and edge calculations would change under different assumptions by temporarily modifying causal tree node probabilities.
sf what-ifYield Curve (Prediction Markets)
A prediction-market yield curve is the term structure of implied yield across all contracts in a single event family, plotted as IY against τ-days for each sibling. The curve is the prediction-market analog of a treasury yield curve, with each "maturity" replaced by a contract resolution date. The curve only exists for event families with two or more sibling contracts, which makes cycle clustering the prerequisite for plotting any curve at all.
sf yield-curve <event-family>APIs, CLIs, and developer tools
API Key
An API key is a secret token that authenticates your requests to SimpleFunctions and to prediction market venues (Kalshi, Polymarket). Each key has permissions and rate limits.
sf keysBatch API
A batch API endpoint accepts multiple requests in a single HTTP call, reducing overhead and latency. SimpleFunctions supports batch market queries, batch edge calculations, and batch price checks.
Candlestick Data
Candlestick data represents price movement over a time period using four values: open, high, low, and close (OHLC). In prediction markets, candlesticks show how contract prices evolve over hours or days.
sf candlesCommand-Line Interface (CLI)
The SimpleFunctions CLI is a terminal-based tool for interacting with prediction markets — scanning for edge, managing theses, viewing orderbooks, and executing strategies from the command line.
sf helpDelta API
The Delta API is a lightweight polling endpoint that returns only data that has changed since your last request. It minimizes bandwidth and processing by sending incremental updates rather than full snapshots.
MCP Server
An MCP (Model Context Protocol) server exposes SimpleFunctions' prediction market data and analysis tools as structured endpoints that AI agents (like Claude, GPT, or custom agents) can call directly.
sf mcp serveRate Limiting
Rate limiting restricts how many API requests you can make in a given time window. Kalshi allows about 10 requests per second; SimpleFunctions handles rate limit management automatically.
sf rate-limitsRSA-PSS Authentication
RSA-PSS (Probabilistic Signature Scheme) is the cryptographic authentication method used by Kalshi's API. Instead of a simple API key, you sign each request with a private key, proving your identity without exposing secrets.
sf auth add-venue kalshiStreaming Responses
Streaming responses deliver data incrementally as it becomes available, rather than waiting for the complete response. SimpleFunctions uses streaming for real-time thesis evaluations and agent conversations.
sf chatWebhook
A webhook is an HTTP callback that sends real-time notifications to your application when specific events occur — such as price alerts, strategy triggers, or thesis confidence changes.
sf thesis update --webhook