Glossary / 101

Plain-English definitions for the terms that come up most often in prediction-markets coverage. Jump to a term or scroll through the full list.

Event Contract

A financial contract whose payout depends on whether a specific real-world event occurs. This is the CFTC’s regulatory term for what prediction markets trade, distinct from “gambling” in federal commodities law.

Designated Contract Market (DCM)

A CFTC-licensed exchange authorized to list and trade futures and event contracts. Kalshi and several newer entrants operate under DCM licenses, which is the legal basis they cite for operating nationally regardless of state gambling law.

Designated Clearing Organization (DCO)

A CFTC-licensed entity that clears and guarantees trades on a DCM, holding collateral and managing counterparty risk. Some exchanges hold both DCM and DCO licenses; others rely on a separate clearing partner.

Yes/No Shares

The two sides of a binary event contract. A “Yes” share pays $1 if the event happens and $0 if it doesn’t; a “No” share pays the opposite. The market price of a Yes share (in cents) is commonly read as an implied probability.

Order Book

The live list of buy and sell orders for a market’s Yes/No shares at various prices. Order book depth is a rough proxy for how easily a position can be entered or exited without moving the price.

Resolution

The point at which a market’s outcome is determined and shares are paid out, based on rules set when the contract was listed (e.g. an official data source, a government report, or a specified real-world outcome).

Liquidity

How much capital is available in a market’s order book to absorb trades without significantly moving the price. Thin markets can see large price swings on small trades.

Open Interest

The total number of outstanding contracts in a market that have not yet been closed or settled, used as a rough gauge of how much capital is actively committed to a given event.

Preemption

The legal doctrine at the center of most state-vs-exchange litigation: whether federal commodities law (the Commodity Exchange Act) overrides, or “preempts,” conflicting state gambling law for CFTC-regulated event contracts. Courts have reached different conclusions state by state as of 2026.

Self-Certification

The process by which a CFTC-licensed exchange lists a new contract by certifying to the agency that it complies with the law, rather than seeking prior approval. The CFTC can still review and challenge a self-certified contract afterward.

Market Maker

A firm or individual that continuously quotes both buy and sell prices on a market to provide liquidity, typically profiting from the spread between the two rather than from predicting the outcome itself.

Geofencing

Restricting access to a platform or specific contracts based on a user’s detected location, used by exchanges to comply with state-by-state legal restrictions without withdrawing from the U.S. market entirely.