Tag Archives: speculation
Speculating and hedging on BetFairs sports prediction markets
The Galileo Fund will be doing just that.
Jason Ruspini is next, I predict.
American Civics Exchange = CFTC-regulated Exempt Board of Trade
American Civics Exchange is enabling what InTrade (circa 2006, when they applied for the eBOT status) couldn’-t…- —-getting the CFTC stamp of approval, and running a real-money prediction exchange from within the US territory (as opposed to offshore). The ACE does not have any direct domestic competitor, right now, but HedgeStreet could enter the political turf, later on.
American Civics Exchange is a play-money and real-money prediction exchange focused on politics. Its contracts pay out depending on whether given political outcomes (e.g. enactment of legislation, regulatory decisions, etc.) take place. The contracts are based on the idea of “-event derivatives”- —-pretty much like the weather derivatives that enable companies that are financially exposed to deviations in temperature (utilities, farms, etc.) to hedge that exposure. The ACE political contracts enable any commercial companies to hedge their financial exposure to things like increased tax rates, enactment of harmful legislation, and adverse regulatory decisions. Speculators are also welcome, of course.
The seven initial contracts are:
- Increase capital gains/dividend income tax rates-
- Elimination of the manufacturers’- tax deduction for oil companies-
- Enactment of “-card check”–
- Enactment of “-cap and trade”–
- The EPA granting California’-s Clean Air Act waiver-
- Increase in the minimum wage-
- Taxation of carried interest as regular income.
The future prediction markets might feature these topics:
- Various new financial services regulations-
- Additional industry bailouts-
- Major healthcare reform-
- FDA drug approvals-
- Windfall profits tax on oil companies-
- Renegotiation/dissolution of existing trade agreements-
- Resolution of major class action lawsuits.
The Delaware-incorporated American Civics Exchange will be operating as an “-exempt board of trade”- pursuant to CFTC regulations, the Commodity Exchange Act, and the Commodity Futures Modernization Act. Last week’-s launch consists solely of the play-money prediction exchange, with free accounts available to the general public. In the coming weeks, the real-money prediction exchange will open shop. Eligible contract participants [see 1(a)12] will then fund their accounts and begin live trading.
UPDATE: On February 10, 2009, the American Civics Exchange received an official acknowledgment from David Stawick, Secretary of the CFTC. The CFTC website, however, does not yet list ACE in their directory of eBOTs. It will, ultimately.
What ACE says (in their media kit) about hedging:
To offset a hypothetical $100,000 negative exposure to a proposed increase in the capital gains tax rate, a market participant would place a bid on 1,000 contracts. If that order were filled at $30, the position would cost $30,000 (excluding transaction costs). Matching such a bid does not require a coincident order to sell 10,000 contracts. As with established exchanges, the liquidity of a robust marketplace of buyers and sellers will enable even large orders to be automatically matched to batched bids submitted by an unlimited number of participants, including both speculators and natural hedgers.
If the tax increase is enacted before 12/31/10, the contract holder would receive $100,000, offsetting the impact of the tax increase. The contract holder can also sell the contract back into the marketplace at the prevailing price at any time before the expiration date, provided another party is willing to purchase the contracts at that price.
Online Futures Market Enables Participants To Hedge Exposure To Political Events
NEW YORK, March 20 /PRNewswire-USNewswire/ —- American Civics Exchangecorp, Inc. announced today that it has launched The American Civics Exchange, the first US-based commercial market for political futures. The Exchange enables traders to hedge and speculate on political risk through derivative contracts based on the outcomes of underlying events, including increases in tax rates, enactment of “-card check”- legislation, increases in minimum wage rates, enactment of “-cap and trade”- legislation, and other legislative, regulatory, and legal outcomes.
The ability to offset exposure to such events using contracts traded on the Exchange will enable risk managers and investors to reduce unwanted risk and protect themselves from adverse political outcomes. All contracts that trade on the Exchange are binary in nature, meaning they settle at $0 or $100, and are fully cash-collateralized, eliminating any counterparty, credit, or clearing risk.
The Exchange’-s initial launch consists of a “-play money”- market for prospective participants and interested members of the general public. This launch will be followed by the roll-out of the “-real money”- market, which will be open only to eligible contract participants (as defined in the Commodity Exchange Act). The play money market will continue to operate parallel to the real money market and will remain available to individuals not eligible to trade in the live market, members of the press, academic and policy researchers, and other interested parties. In coming weeks, the Exchange will phase in additional collaborative and community-based tools for trading and research.
Philip “-Flip”- Pidot, one of the founders and the CEO of the Exchange, said, “-The inauguration of a new Presidential administration and the unprecedented legislative and regulatory changes being considered in response to the financial crisis have only magnified the bottom-line impact of public policy decisions. For the first time, businesses and individuals have a market-based solution to hedge against these uncertain political risks.”-
The American Civics Exchange operates as an Exempt Board of Trade pursuant to federal law and CFTC regulations. Users can register accounts and trade through the secure online trading platform located at http://amciv.com.
Requests for additional information can be directed to [email protected] or (646) 257-2426.
For media inquiries, please contact Audrey Mullen at [email protected] or (703) 548-1160.
UPDATE: The Hill on ACE…-
Lights! Camera! Futures trading! Cantor Exchange!
“-Technically, you can trade anything, because wherever there is a financial interest, there can be a market,”- said Andre Julian, chief financial officer of Option Investments Inc., an Irvine, Calif.-based independent broker for futures and options traders.
“-People love stats, and movies are something people understand, which is why it could bring some regular people into the futures markets for the first time,”- he said. “-Of course, it might be more difficult if it was launched in the middle of a bull market, when there would be no reason to look beyond stocks.”-
With a $50 trading minimum, the movie futures exchange clearly is hoping to attract a segment of retail-class investors and movie junkies, but once developed, the exchange could also become a vehicle to allow movie moguls to hedge their investments.
“-If it costs a studio $200 million to make a movie, that studio could use this exchange to protect its investment by going short the same amount, and then if they’-re losing money on the open market, they could make it back on the short side,”- Mr. Julian said. “-It all comes down to money, and there’-s always somebody on the opposite side willing to make a trade.”-
Best wishes to Richard Jaycobs.
Nobel laureate Gary Becker and judge Richard Posner both wish that, one day, real-money prediction markets will be legal, without restrictions, in the United States of America.
Via David Pennock of Odd Head fame
[…] I believe that online political prediction markets, and other online prediction markets as well, should be legal in the United States and elsewhere, even if the amounts bet were quite large. There is no important substantive difference between such online betting markets and the Chicago Mercantile Exchange and other exchanges that allow individuals and organizations to take positions on movements of stock indexes, housing price indexes, and prices of other derivatives. A distinction is sometimes made between political betting markets and derivative markets since participants in derivative markets may be hedging other risks that they face. Yet this distinction has little substance since if larger bets were allowed in online political markets, groups whose welfare depended greatly on political outcomes would make greater use of these markets. For example, if a Republican presidential win would mean greater spending on military weapons, companies in the arms business might hedge their risks by betting on Barack Obama.
If large bets were allowed, some wealthy groups may bet a lot on their candidates in order to exert bandwagon influences on public opinion through their large bets affecting market odds. If so, these markets likely would become less reliable as predictors of outcomes, and hence would have less influence on opinions. To a large extent, therefore, these markets would be self correcting, although online political markets might place various other restrictions on bets, as is common in derivative and other exchanges.
[…] There is an interesting question whether prediction markets should be thought of as “-gambling” and perhaps prohibited. As a matter of policy, that would be a mistake, even if one thinks that gambling should be prohibited. The prediction markets are markets for speculation, rather than for game-playing or risk-taking. Slot machines, card-playing, roulette wheels, and other conventional forms of gambling do not generate socially valuable information. Speculation does. Commercial speculation serves to hedge commercial risks and bring prices into closer phase with value. Political, cultural, etc. prediction markets also yield socially valuable information. The outcome of elections is important to companies and even individuals for whom particular public policies are important- they may wish to make adjustments to avert or exploit looming political change. Politicians too need to have as sharp a sense as possible about the effects on the electorate of their and their opponents’- strategies. Apparently they can get more accurate information from the prediction markets than from the public opinion pollsters.
Speculating on event derivative markets is not investing.
Ultra pertinent remark from the Club For Growth blogger:
[The New York Post video] is an informative video, but I want to quibble about two things. I view the term “-investing”- as the act of buying an asset with the hopes of it appreciating in value sometime in the future. Used correctly, you “-invest”- in a new home, a company on the stock exchange, or a baseball card collection.
However, you can’-t “-invest”- in politics as the New York Post reporter said you could. The reason why you can’-t is because contracts sold on prediction markets like InTrade.com are not assets– they are derivatives. Their value is based on the outcome of some event. Like futures contracts for frozen concentrated orange juice. […-]
I have been blogging about that for years, here, on Midas Oracle.
Previous blog posts by Chris F. Masse:
- If Midas Oracle were to meet, would we use Huddle, and why?
- WORLD’S SUCH A SMALL PLACE: Smarkets meet HubDub.
- 50% of our prediction market luminaries have a MacBook.
- STRAIGHT FROM OUR TRUISM DEPARTMENT: Money buys happiness.
- Ron Paul (R) and Barney Frank (D) ally together to attack “the practical hurdles of the federal law, known as the Unlawful Internet Gambling Enforcement Act, rather than its legitimacy”.
- Clicking on the “SPHERE: RELATED CONTENT” button, at the bottom of each Midas Oracle post, will bring you a list of external webspots.
- FRIGHTENING: Jed Christiansen’s prediction market blog was briefly overtaken by web spammers, who inserted invisible links to their commercial sites so as to game the Google PageRank system.