Trader’s Narrative

I’m not following the 2008 political race in the US that closely but there is a very cool and capitalistic way to keep up to date without doing any amount of hard work.

Did you know that there are marketplaces where capitalism can be used to predict the outcome of political events?

They are similar to futures markets where a contract can be bought or sold (bid/ask) that will pay a fixed return. So for example, if you thought that Barack Obama would win the Democratic nomination, you could buy or bid on his contract. If he did win, then you would be paid the full amount of the contract (usually 100 points).

The two most popular online marketplaces are intrade.com and the Iowa Electronic Markets. If you are in the US, be careful if you want to participate in these marketplaces. Some states have laws against gambling on political events. The Iowa markets though have received special treatment from the CFTC which allows them to pay out real cash (up to $500) to US citizens.

But you don’t have to participate in these markets to gain insight. Because of the way the contracts are setup, they in effect, act as a measure of probability for an event. Or atleast, what the crowd deems to be the probablity of a future event.

So for example, the contract for Hillary Clinton on intrade gives her a 47% chance of winning the Democratic nomination:

Obama is currently in second place with a 31% chance of winning. Iowa markets are showing very similar probabilities with Hillary Clinton having 42.4% and Barack Obama 33.4%

Recently, Mike Gravel has gotten a lot of attention from the online community (digg, reddit, youtube, etc.). But he’s nowhere to be seen on the prediction markets.

On a different note, I’ve continued to add articles, books and other choice trading related resources to my box.net widget. Make sure to check it out and let me know if you have any special requests.