A year or two ago, I was alerted to the presence of a web site called InTrade.com. The site is described, alternatively, as an exchange or a gambling platform. Both are somewhat accurate. Essentially, at any given moment there are hundreds of various “markets” in different categories, such as “Politics,” “Business,” and “Entertainment.” In each market, users buy and sell (and even short-sell, just as in a real-life stock market) shares of a specific stock.
The twist is that each stock comes in the form of a predictive yes-or-no question. For example, here are a few going on right now: “Mitt Romney to be Republican Presidential Nominee in 2012;” “Any country currently using the Euro to announce their intention to drop it midnight ET 31 Dec 2012;” and even “NASA to announce discovery of extraterrestrial life before midnight ET 31 Dec 2012.” Unlike a normally functioning stock market, each share always falls between the outer limits of $0 and $10, depending on the market’s prediction of the event’s probability. So a market price of $6.50 for Mitt Romney winning the Republican nomination would mean that the market thinks Romney has a 65% chance of capturing the nomination.
So users buy if they think the stock is under-valued and sell if they think it’s over-valued (and, as mentioned earlier, they can even short-sell as well). Once the event itself has been completed, the market always settles at either the full price of $10 (for a “yes” result) or $0 (for a “no”). So if Mitt Romney wins, everyone who bought at $6.50/share would make a $3.50/share profit. Alternatively, users can buy or sell at any point before the market closes as well, meaning that someone could, say, buy Romney at $6.50 and sell him later at $7.50, before the nomination is sealed.
Anyway, today for the first time, I funded my account (with a paltry $30; I am a student, after all) and bought 6 shares of Santorum winning the GOP nomination for just over $3 total, and then placed another small bet on whether the Dow Jones’ closing level today would be higher than its closing level yesterday. We’ll see how things go.
- US 2012 Election and InTrade Predictions (nextbigfuture.com)
- Biotech Stocks That The Smart Money Don’t Agree On (wire.kapitall.com)
- What Is Integrity? (gompsparky.wordpress.com)
- Short Selling: A Quick Start Guide (tradeking.com)
- Short Selling: Can you short a bond like you short a stock? | LearnBonds.com (learnbonds.com)
- Can the President Really Move the Stock Market? (forbes.com)