From Deep Throat, we learned that Russell Andersson was laid off by HedgeStreet at the beginning of the Summer 2007. If so, why is it that Russell Andersson’s profile at LinkedIn states that he is still “currently” holding a position as a HedgeStreet VP?

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Reality Check:

- The “management team” page of the HedgeStreet website lists Yossi Beinart (President and CEO), Peter C. Lee (COO), and Timothy McDermott (General Counsel).

- The “board of directors” page of the HedgeStreet website lists Yossi Beinart (President and CEO), Peter Hetherington (Director) and Andrew MacKay (Director).

There is no mention of Russell Andersson as “VP Instrument Origination”.

1. Is Russell Andersson still working for HedgeStreet as a VP? In that case, why is it that HedgeStreet’s website is not accurate?
2. Was he told in 2007 by IG Group (the new owner) that his services were no longer needed? In that case, why can’t Russell Andersson update his LinkedIn profile? Additionally, in the case Russell Andersson was given the boot, would that mean that Russell Andersson has a large responsibility in the catastrophic failure of the pre-IG Group HedgeStreet?

Update

1. Any blogger, reporter or journalist does not wait for somebody’s consent to publish the truth. (That photo is indeed that of Russell Andersson. I did not lie, right?)
2. That photo was taken from an official interview of Russell Andersson. (On Midas Oracle, any image that is re-published comes embedded with the link to the source where that image was taken, so that our readers can check the source by themselves.)
3. The reason Midas Oracle is “the most visited site related to this space”, according to that (successful, him) prediction market professional, is that I don’t wait for the “consent” of VIPs or established organizations before I hit the “publish” button.
4. If Russell Andersson wants Midas Oracle to publish a long series of positive reviews about his work, he could do what Nigel Eccles of HubDub and Adam Siegel of Inkling Markets and others have done: Creating value for the traders and the probability seekers.

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HedgeStreet, circa Russell Andersson:

Binary Options
Binaries Description

Binaries have the following characteristics:

* A Binary is a $100 contract between a buyer and a seller (both HedgeStreet members) – the buyer taking the position that a certain strike price will be reached or a certain event will happen on the expiration date, and the seller taking the position that it will not.
* Buyers and sellers trade contracts at prices based on their sense of the perceived likelihood that a price will or will not rise, or an event will or will not happen. Thus, the value of each Binary is equivalent to the probability of the corresponding situation, as the potential gain is always a fixed amount of $100 per contract.
* Since the value of each Binary is equal to the perceived probability of the event occurring, all contracts can be immediately compared. For example, if an event appears to have an 80% chance of happening, the buyer pays $80 per contract, and the seller pays the balance of the $100 contract, or $20.
* If the price of the underlying exceeds the strike price or the event does happen on the expiration date, the buyer receives $100, and the seller gets $0, thereby losing their initial investment.
* If the price of the underlying does not exceed the strike price or the event does not happen on the expiration date, the seller receives $100, and the buyer gets $0, thereby losing their initial investment.

Cash requirement:
The cash requirement is the maximum that can be lost if the predicted outcome does not occur. For the buyer, it is the contract price. For the seller, it is $100 minus the contract price.

Final payout:
At expiration, the payout is always $100 per Binary. The buyer receives $100 if the price of the underlying exceeds the strike price or the event does happen and $0 otherwise. The seller receives $100 if the price of the underlying is equal to or below the strike price or event does not happen and $0 otherwise.

Additionally, traders can close out their positions prior to expiration by selling (in the case of an initial buyer) or buying (in case of an initial seller) their Binaries at any time before the last trading date. In such cases, the profit and loss is the difference between the price received and the price paid.

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HedgeStreet, circa Russell Andersson:

Futures Contract Description
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Futures Contracts have the following characteristics:

1. A Futures Contract is a $0 – $100 Futures contract between traders where one takes the position a market will rise (the Buyer), and the other takes the position the market will fall (the Seller).
2. Traders determine Contract prices based on their sense of the likelihood of the outcome.
3. If the market rises, Buyers profit and Sellers lose, according to the amount of the rise.
4. If the market falls, Sellers profit and Buyers lose, according to the amount of the fall.
5. The cap and floor of the Contract’s range limit the potential loss to the amount invested, and limit the potential gain to $0-$100 (the contract size).

Cash requirement:
The cash requirement is the maximum that can be lost if the underlying ends at or below the Floor (for Buyers) or at or above the Cap (for Sellers). For a buyer, it is the contract price. For a seller, it is the contract size (which is up to $100) minus the contract price.

Final payout:
At expiration, the payout is based on the ending level of the underlying, relative to the Contract’s range.

If the underlying ends at or below the floor, the payout is $0 for the buyer and the stated contract size (of up to $100) for the seller. If the underlying ends at or above the cap, the payout is the stated contract size (of up to $100) for the buyer and $0 for the seller.

If the underlying ends between the floor and the cap, the stated contract size is split between the buyer and seller, where the buyer receives $Y for every X tick the underlying finished above the Floor and the seller receives $Y for every X tick the underlying finished below the Cap, such that payout for the buyer increases when the underlying ends closer to the cap, and payout for the seller increases when the underlying ends closer to the floor.

Example: For Crude Oil $70.00 to $80.00, with a $100 contract size – if Crude Oil ended at $77, the buyer would receive $10 for every $1 Crude Oil finished above $70, or $70, while the seller would receive $10 for every $1 Crude Oil finished below $80, or $30.

Additionally, traders can close out their positions prior to expiration by selling their Futures Contracts at any time before the last trading date. In such cases, the profit and loss is the difference between the price received and the price paid.

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I took those excerpts on the old HedgeSteet website. It may not reflect their current website. Visit them to get updated, if you need.

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See also TradeFair‘s binaries.

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My preferred vocabulary for InTrade and BetFair’s services:

• event derivative markets
• prediction markets

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But did that same Mark Longo ask the hard questions to HedgeStreet’s Russell Andersson, when he interviewed him in the Summer of 2007, two months before the HedgeSteet immolation? Of course, not.

Building an exchange is challenging. Be patient. It is complex. It will take time. The retail derivatives market has a huge future.

…pleaded Russell Andersson to a gullible Mark Longo. … And two months later HedgeStreet did belly up. … What a nuclear joke. … The finance journalists are a bunch of suckers.

Is HedgeStreet closing shop?

Yesterday, I re-published on Midas Oracle the e-mail sent to the HedgeStreet traders and prospects. (Curiously, this e-mail was not sent to me, even though I am in their listing.) They wrote that their overhauling would lead them to propose soon “new and exciting products”. Well, I found that interesting.

However, today, one of my Deep Throats ( ) is telling me that it is all bullshit, actually.

1. They are packaging HedgeStreet for a closing/fire-sale. Everyone is leaving, and only a skeleton crew is left.
2. The CFTC has minimum capital requirements, which HedgeStreet is not able to sustain. They were burning $1m a month on 5k-10k of revenue, then tightening and tightening… There’s just no money left.
3. UPDATE: Russell Andersson was laid off about 3 months ago. VP of finance leaving, VP of compliance leaving, etc. It is falling apart.

We will see.

Mark Longo chats with Russell Andersson, co-founder of the on-line derivatives exchange HedgeStreet.

Excerpt from my transcript of the Russell Andersson interview: “Building an exchange is challenging.” Be patient. It is complex. “It will take time.” The retail derivatives market has a huge future.

Previous: PODCAST INTERVIEW: Russell Andersson of HedgeStreet

Mark Longo chats with Russell Andersson, co-founder of the on-line derivatives exchange HedgeStreet.
- HedgeStreet’s Unique Approach To Binary Event Derivatives
- HedgeStreet’s Struggle To Overcome The Stigma of the DARPA Terrorism Futures Exchange
- Can HedgeStreet Avoid Offending Its Customers As It Expands Into Potentially Questionable New Markets
- Why Is It So Difficult To Find Liquidity Providers For Binary Derivatives
- The Triumphs & Tribulations of HedgeStreet’s Partnerships With CBOE, SIG & DRW.
- What The Future Holds For The Binary Derivatives Market

- The binary event derivatives are “structurally interesting”.

- The rise of the “prediction markets” helps HedgeStreet.

- Markets are extremely useful as information aggregation mechanism.

- Human market making at HedgeStreet.

- “Perception” [??] that the size of the spread is too wide.

- “Building an exchange is challenging.” Be patient. It is complex. “It will take time.” The retail derivatives market has a huge future.

- The new [??] HedgeStreet CEO has a background in consumer products, not in derivatives.

- Originally, HedgeStreet was seen as the eBay of risks. Now, they want to go after the active traders. They will be less consumer-oriented in the future. They will focus on the “active segment”, which is growing —the financial event derivatives.

- EPS prediction markets – M&A prediction markets – etc.

- Credit event derivatives – HedgeStreet won’t do them.

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Two issues weren’t addressed: the market design of the HedgeStreet prediction markets, and the prediction markets on sports and politics.