Intrade

Have you ever heard of Intrade? I have been following it for a couple years. It's a useful tool for examining a global opinion about possible future events. As such, it is a prediction market.


I would imagine that term could be foreign to you, so let me try to explain.

Intrade is an online trading exchange website whose members speculate on the outcomes of non-sports-related future events. Intrade was founded in 2001. This web-based exchange originates from Ireland, and can be found at Intrade.

Here are some comparisons to help you understand:

• When it comes to the stock market, one buys & sells stocks which represent ownership in companies.

• In the commodities market, one buys & sells contracts for raw materials, like hogs, sugar or oil.

• For the futures market, one can deal in contracts to buy specific quantities of a commodity or financial instrument at a specified price with delivery set at a specified time in the future. For example, corn for delivery on some winter date.

Now when it comes to a prediction market, one is buying & selling probabilities of a well-defined outcome! That is, whether you wish to put money down on whether a future event will or will not occur. Only one of those two things can happen.

For example, last year there was a predictions contract on whether Hillary Clinton would be the Democrat's Vice-Presidential candidate. Some people put money down saying "yes, she would be selected." Others had the opposite point of view, and placed their money in the "no" camp.

Trading positions are provided in the common investment nomenclature of long (will happen) and short (will not happen).

The trading unit is a contract with a settlement value, typically $10, and the contract may trade in range of 0-100. If the event specified in a given contract occurs, the contract settles at 100 points; otherwise, the contract settles at 0.

Thus, the current price of the contract can be imputed as the market's global opinion of the probability that the specified event will occur.

In the example given, Mrs. Clinton was not selected, so that contract settled at 0--and those who placed their money on the "short" side, collected, and those who went "long" lost all.

Because most events take place over a well-defined time span, traders can trade both before and during an event. This is different than sports-related events, ie, gambling, where no further bets are taken once the ponies start running.

Here is an explanation from John Stossel on ABC's 20/20.




In my next article we will use Intrade information to give you an insight into international opinion about a major US public debate these days.