liquidity fragmentation

The dispersion of trading capital across multiple independent order books when a single question is split into many binary contracts. In prediction markets, this creates ghost markets where tail outcomes receive little or no volume, reducing the information captured by the market structure.

Cluster: Liquidity & Trading

Related Concepts

• binary contracts — Prediction market contracts that resolve to exactly one of two values, typically $1 (yes) or $0 (no), based on whether a specified event occurs. The binary structure eliminates ambiguity at resolution and enables direct probabilistic interpretation of prices.
• multi-outcome markets — Prediction markets where an event is divided into multiple mutually exclusive outcome ranges (e.g., price brackets), each tradeable. Contrasts with binary markets that only ask yes/no questions.
• semantic tick size — The minimum price increment in a prediction market that doubles as a narrative unit: because contracts resolve at $0 or $1, each one-cent move is universally read as a one-percentage-point probability revision, making microstructure noise appear informative.

Articles about liquidity fragmentation

• Binary Events: What Happens When You Split One Market Into Twenty by functionSPACE