What's the difference between a CLOB and an AMM?

A Central Limit Order Book (CLOB) matches resting buy and sell orders by price and time priority — every price you see on the book was posted by another trader. An Automated Market Maker (AMM) sets prices algorithmically from a bonding curve based on the pool's inventory. Kalshi runs a CLOB; Polymarket originally used an AMM and now also runs a CLOB.

Is implied probability the same as the actual probability?

No — it is the market's collective estimate, weighted by capital, not a physical probability. On efficient markets like Kalshi's macro contracts the implied number is usually close to the best available forecast because arbitrageurs push it there. On thin or attention-driven markets it can drift meaningfully away from any statistically defensible number.

Why do event contracts pay exactly $1?

Because the $1 unit makes the price directly interpretable as a probability. A contract trading at $0.30 costs $0.30 and pays $1 if you're right — the math for expected value, breakeven, and Kelly sizing all fall out cleanly from that single normalization. Every regulated event-contract exchange uses the same $1 convention for exactly this reason.

What is Section 1256 tax treatment and does it apply to Kalshi?

Section 1256 is an IRS classification for certain regulated futures-style contracts that grants a 60% long-term / 40% short-term capital-gains split regardless of holding period, which is meaningfully better than pure short-term treatment. Some Kalshi contracts qualify and some do not — the 1099-B Kalshi issues will indicate the treatment. Confirm your specific situation with a tax professional.

What does 'depth' mean on an order book?

Depth is the total size resting at each price level on both sides of the book. Practically, look at how much size sits within 2¢ of the mid-price — that is the amount of notional you can trade before your own order starts moving the market meaningfully. Thousands of contracts of depth means real liquidity; a few hundred means you will move the price.

What is slippage and how do I avoid it?

Slippage is the difference between the price you expected and the price you actually filled at, caused by the book moving as your order eats through resting liquidity. You avoid it by using limit orders instead of market orders, breaking large orders into smaller pieces, and never crossing more than the top-of-book size on a thin market. On liquid markets it is negligible.

What is an optimistic oracle?

An optimistic oracle is a resolution mechanism (used by Polymarket via UMA) that assumes proposed outcomes are correct unless someone posts a bond to dispute them within a set window. It is cheaper than a fully on-chain consensus system but introduces a mandatory delay between event completion and payout — usually two hours to two days depending on parameters.

What's the difference between notional and position size?

Position size is the raw number of contracts you hold. Notional is that number multiplied by the current price, giving the current dollar value of the position. A position of 1,000 contracts at $0.60 is 1,000 shares of size with $600 of notional exposure. Risk management is almost always framed in notional terms, not raw share counts, because share counts ignore price.

Prediction-market glossary: 30 terms every Kalshi trader should know

How to use this glossary

This is a working glossary for active Kalshi and Polymarket traders in 2026. Each term is defined in plain English with just enough context that the definition actually applies at the trading desk — no vague hand-waving, no academic tangents. The terms are grouped by topic (core mechanics, order types, risk and pricing, regulatory) so you can scan for the vocabulary that matches whatever page of the exchange you are currently confused by. If a definition still feels abstract, cross-reference our other Learn articles for worked examples in context.

Core mechanics

Event contract — a binary YES/NO claim on a real-world outcome that pays $1 if the claim is true at resolution and $0 if it is false. Prices trade between $0.01 and $0.99.
DCM — Designated Contract Market, the CFTC's license class for regulated derivatives exchanges. Kalshi holds a DCM license, which is what makes it legal in all 50 states.
CLOB — Central Limit Order Book, the matching engine that pairs resting bids and offers by price and time priority. Kalshi and Polymarket both run CLOBs.
AMM — Automated Market Maker, the formula-driven alternative to a CLOB where prices are set by a bonding curve rather than an order book. Polymarket originally used an AMM before moving to a CLOB.
Resolution source — the predetermined authority named in a contract spec that decides YES or NO. For macro data it is BLS or BEA; for weather it is NHC or NWS; for sports it is the league scoreboard.
Position — an open exposure to a specific contract, expressed as a number of YES or NO shares held.
Settlement — the final payout event when a contract resolves. Winners receive $1 per contract, losers receive $0, and cash lands in the account immediately.

Order types

Limit order — an instruction to buy or sell at a specific price or better; sits on the order book as a resting bid or offer until filled or cancelled.
Market order — an instruction to fill immediately against whatever is currently resting on the opposite side of the book; guarantees fill but not price.
Fill-or-kill (FOK) — an order that must be filled completely and instantly or is cancelled entirely; used to avoid partial fills on illiquid markets.
Immediate-or-cancel (IOC) — fill as much as possible immediately and cancel the remainder; a middle ground between market and FOK.
Post-only — an order that will only rest on the book, never take from it; used by market makers to guarantee they collect the passive rebate side of any fee schedule.
Resting order — any limit order sitting on the book awaiting a taker; the volume you see on the book at each price level.

Risk and pricing concepts

Implied probability — the price of a YES contract expressed as a percentage; $0.62 means the market implies a 62% chance the event happens.
Spread — the gap between the best resting bid and the best resting ask on a market; the immediate cost of crossing the book with a market order.
Slippage — the difference between the price you expected to fill at and the price you actually filled at; larger orders in thinner books slip more.
Liquidity — the amount of notional that can be traded on a market without meaningfully moving the price; usually measured by top-of-book depth or 24-hour dollar volume.
Mark-to-market — the current unrealized profit or loss on an open position, calculated using the current mid-price as the exit price.
Notional — the dollar value of an open position at current price; a position of 1,000 contracts at $0.60 has $600 of notional YES exposure.
Book depth — the total size resting at or near the top of the book on each side; the practical measure of how much you can trade without moving the market.
Impact — the price move caused by your own order; a function of your order size divided by book depth at nearby price levels.

Regulatory and tax terms

CFTC — Commodity Futures Trading Commission, the US federal regulator with authority over futures, swaps, and event contracts. Kalshi is CFTC-regulated.
KYC — Know Your Customer, the mandatory identity-verification process every regulated US exchange runs before allowing account funding or trading.
1099-B — the IRS tax form Kalshi issues annually summarizing your realized gains and losses for federal tax reporting.
Section 1256 — the IRS tax classification for certain regulated futures-style contracts, offering a 60% long-term / 40% short-term capital gains split regardless of holding period.
Segregated funds — customer deposits held in dedicated qualified US bank accounts, legally separated from the exchange's operating funds; a CFTC requirement for DCMs.
Position limit — the maximum number of contracts a single account can hold in one market, defined per contract in the CFTC filing.

On-chain and Polymarket-specific terms

USDC — the USD-pegged stablecoin used as settlement currency on Polymarket. Every Polymarket trade is denominated in USDC on Polygon.
Polygon — the layer-2 Ethereum-compatible blockchain Polymarket runs on. Transactions are cheaper than Ethereum mainnet but still require gas.
Gas — the fee paid to blockchain validators to process a transaction; charged in the native token of the chain (MATIC on Polygon).
UMA — the Universal Market Access optimistic oracle Polymarket uses to resolve markets; introduces a mandatory dispute window between event and payout.
Web3 wallet — a self-custody crypto wallet like MetaMask required to interact with Polymarket; you hold the private keys, not the platform.