I kept hearing about how this or that political campaign or economic scenario was “trending on Intrade”, so I thought I’d check it out. Then, of course, I had to make some bets. It’s fun! But not a good way to make money I think.
The rules couldn’t be simpler (That page doesn’t mention the flat $4.99/month it costs to play.)
I’m totally not a gambler. Played a bit of poker in college, without much success. Anyone in my trade finds themselves in Vegas sometimes, so once I went and got $100 and tried the casino thing; lost it in an hour without having much fun.
But I’m a keen student of world affairs, and a news-hound. And I quickly saw some markets I couldn’t resist, so I dropped in a big $200, and let’s see how it goes. Just by way of transparency, here are the bets I have on the table. These are all out of 10 so, “$3.30” means a prediction that the likelihood is 33%.
Bashar al-Assad to be dumped by the end of 2012, at $6.13 (currently up to $6.50).
Shorted Condi Rice for Mitt’s VP pick at $0.50 (currently $0.54).
Shorted UK loses its AAA rating in 2012 at $3.30 (currently $3.30).
Problems · I think I’ll probably do this at a low level, for a while at least, purely for the pleasure of matching wits against the hive-mind. But unless I’m missing something (perfectly possible only a few days in) there are two obstacles to making real money.
The market isn’t very liquid. Suppose I think that the current (as I write this) price of $6.57 to bet that Bashar’s gone by 2013/01/01 is low, and I want to up my bet. At the moment, there are only 5 shares on offer at $6.57.
Also, the difference between buy and sell ($6.57 and $6.15) seems steep.
A super-tempting way to make money is to short very-unlikely things where the share price hasn’t gone to zero. For example, Condi is not gonna be the Veep nominee, because she’s pro-choice, and also the Republicans know they can’t win without the racist vote.
But to short her at $0.50, you have to lock up $10 a share, because that’s the cost if you’re wrong. The conventional wisdom is that Mitt will make his pick around August 1; so to make 50¢ I have to park $10 for several weeks.
Did I Mention... · that it’s fun? I don’t know, if my bets keep paying off, I might even put some more money in. But more likely, I’ll just feel quietly smug about outsmarting the world in a small but quantifiable way. And if they don’t, humility is a good thing, and it might still be fun; we’ll see.
Contributions
Comment feed for ongoing:
From: John Cowan (Jul 21 2012, at 11:00)
"So to make 50¢ I have to park $10 for several weeks."
But naturally. "He who sells what isn't hisn / Must buy it back or go to prison."
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From: Ryan Cousineau (Jul 21 2012, at 12:33)
The "super-tempting way to make money" is the fundamental error that drove a lot of explosive failures in hedge funds, carry trades, and (sort of) our friend the US mortgage/CDS market: make a lot of plays that are designed to win small amounts of "sure" money with low odds of (expensive) failure.
The problem is exemplified by your Condi Rice short: a $.50 price gives that event a 5% chance of happening (or 1 in 20, if you like to think that way).
If you find 20 other events that are just as unlikely to happen, and bet them all, then if the market is pricing these events well, you'll...break even because one of your bets will surprise you, and of course that $10 down the toilet will swamp the 19 times you made $.50.
This could be wrong: you may actually be smarter than the market, and are finding value bets at long odds. And I realize I'm not telling you anything that you didn't know about the odds, but it was striking to see you describe exactly the error that many very smart people have committed with very large piles of money, with similar expectations of profit, and similar shock when something unlikely happened.
But maybe this time is different.
(There's some tricky confounding issues, but I'll see if I can figure out what the historic performance of Intrade markets has been on long-odds outcomes. Might be interesting)
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From: DT (Jul 22 2012, at 11:23)
"also the Republicans know they can’t win without the racist vote".... wow, I don't even know what to say about this...
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From: Bringer (Aug 03 2012, at 09:19)
At your current amount of investment, you are paying Intrade 30% a year for your account. That's a lot. It seems that the sure bet here is in opening a website like Intrade.
(5$*12months/200=0.3=30% a year.)
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