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The Iowa Electronic Markets (IEM) are a group of real-money prediction markets/futures markets operated by the University of Iowa Tippie College of Business. Unlike normal futures markets, the IEM is not-for-profit; the markets are run for educational and research purposes.
The IEM allows traders to buy and sell contracts based on, among other things, political election results and economic indicators. Some markets are only available to academic traders. The IEM also trades futures based on financial markets, such as whether the Fed Funds rate will be raised at the following meeting.[ citation needed ]
The IEM has often been used to predict the results of political elections with a greater accuracy than traditional polls. [1] [2] [3] [4]
A precursor to the IEM was the Iowa Political Stock Market (IPSM), invented by George Neumann, and developed by Robert E. Forsythe, Forrest Nelson, and George Neumann.[ citation needed ]
The IEM is neither regulated by the U.S. Commodity Futures Trading Commission (CFTC) nor by any other agency due to its academic focus and the small sums that are involved. Indeed, the IEM has received two no-action letters that extend no‑action relief. A speculator may put at risk in the IEM only between $5 and $500. In contrast, other future markets like Nadex are regulated by the CFTC and allow speculators to take on or financially offset significant amounts of risk regarding economic events or the prices of commodities.[ citation needed ]
In finance, speculation is the purchase of an asset with the hope that it will become more valuable shortly. It can also refer to short sales in which the speculator hopes for a decline in value.
In finance, a futures contract is a standardized legal contract to buy or sell something at a predetermined price for delivery at a specified time in the future, between parties not yet known to each other. The asset transacted is usually a commodity or financial instrument. The predetermined price of the contract is known as the forward price or delivery price. The specified time in the future when delivery and payment occur is known as the delivery date. Because it derives its value from the value of the underlying asset, a futures contract is a derivative.
The Policy Analysis Market (PAM), part of the FutureMAP project, was a proposed futures exchange developed, beginning in May 2001, by the Information Awareness Office (IAO) of the United States Defense Advanced Research Projects Agency (DARPA), and based on an idea first proposed by Net Exchange, a San Diego, California, research firm specializing in the development of online prediction markets. PAM was shut down in August 2003 after multiple US senators condemned it as an assassination and terrorism market, a characterization criticized in turn by futures-exchange expert Robin Hanson of George Mason University, and several journalists. Since PAM's closure, several private-sector variations on the idea have been launched.
Prediction markets, also known as betting markets, information markets, decision markets, idea futures or event derivatives, are open markets that enable the prediction of specific outcomes using financial incentives. They are exchange-traded markets established for trading bets in the outcome of various events. The market prices can indicate what the crowd thinks the probability of the event is. A typical prediction market contract is set up to trade between 0 and 100%. The most common form of a prediction market is a binary option market, which will expire at the price of 0 or 100%. Prediction markets can be thought of as belonging to the more general concept of crowdsourcing which is specially designed to aggregate information on particular topics of interest. The main purposes of prediction markets are eliciting aggregating beliefs over an unknown future outcome. Traders with different beliefs trade on contracts whose payoffs are related to the unknown future outcome and the market prices of the contracts are considered as the aggregated belief.
Election stock markets are financial markets in which the ultimate values of the contracts being traded are based on the outcome of elections. Participants invest their own funds, buy and sell listed contracts, earn profits and bear the risk of losing money. Election stock markets function like other futures exchanges, such as commodity exchanges for the future delivery of grain, livestock, or precious metals.
The Wisdom of Crowds: Why the Many Are Smarter Than the Few and How Collective Wisdom Shapes Business, Economies, Societies and Nations, published in 2004, is a book written by James Surowiecki about the aggregation of information in groups, resulting in decisions that, he argues, are often better than could have been made by any single member of the group. The book presents numerous case studies and anecdotes to illustrate its argument, and touches on several fields, primarily economics and psychology.
Foreign exchange fraud is any trading scheme used to defraud traders by convincing them that they can expect to gain a high profit by trading in the foreign exchange market. Currency trading became a common form of fraud in early 2008, according to Michael Dunn of the U.S. Commodity Futures Trading Commission.
Nadex, formerly known as HedgeStreet, is a US-based retail-focused online binary options exchange. It offers retail trading of binary options and spreads on the most heavily traded forex, commodities and stock indices markets.
Prediction markets company NewsFutures (2000–2010) evolved into Lumenogic (2010–2019), "a consulting firm that specializes in developing and customizing online systems for large organizations to use to gather so-called Collective Intelligence from their employees", which in turn became Hypermind.
Intrade.com was a web-based trading exchange whose members "traded" contracts between each other on the probabilities of various events occurring. After having been forced to exclude US traders in 2012, on 10 March 2013 Intrade suspended all trading, citing possible "financial irregularities". For a time after the suspension, the intrade.com website stated that they were working on a relaunch of the site, called "Intrade 2.0", but as of August 2014 it states that "It appears very unlikely now that Intrade will resume trading services in the way it had operated previously", and announced plans to close all accounts and refund monies by 31 December 2014.
The Commitments of Traders is a weekly market report issued by the Commodity Futures Trading Commission (CFTC) enumerating the holdings of participants in various futures markets in the United States. It is collated by the CFTC from submissions from traders in the market and covers positions in futures on grains, cattle, financial instruments, metals, petroleum and other commodities. The exchanges that trade futures are primarily based in Chicago and New York.
The dumb agent theory (DAT) states that many people making individual buying and selling decisions will better reflect true value than any one individual can. In finance this theory is predicated on the efficient-market hypothesis (EMH). One of the first instances of the dumb agent theory in action was with the Policy Analysis Market (PAM); a futures exchange developed by DARPA. While this project was quickly abandoned by the Pentagon, its idea is now implemented in futures exchanges and prediction markets such as Intrade, Newsfutures and Predictify. The DAT is technically a hypothesis, not a theory.
The PollyVote project uses the high-profile application of predicting U.S. presidential election results to demonstrate advances in forecasting research. The project is run by political science professors and forecasting experts, one of which is J. Scott Armstrong. All procedures, data, and results are fully disclosed and freely available online.
Political forecasting aims at forecasting the outcomes of political events. Political events can be a number of events such as diplomatic decisions, actions by political leaders and other areas relating to politicians and political institutions. The area of political forecasting concerning elections is highly popular, especially amongst mass market audiences. Political forecasting methodology makes frequent use of mathematics, statistics and data science. Political forecasting as it pertains to elections is related to psephology.
iPredict was a New Zealand prediction market that offered prediction exchanges on current events, political issues and economic issues. iPredict was jointly owned by the New Zealand Institute for the Study of Competition and Regulation and Victoria University of Wellington. The site launched on 9 September 2008 and closed 1 December 2016.
In finance, box office futures is a type of futures contract in which investors speculate on upcoming movies based on their predicted performance.
A commodity trading advisor (CTA) is US financial regulatory term for an individual or organization who is retained by a fund or individual client to provide advice and services related to trading in futures contracts, commodity options and/or swaps. They are responsible for the trading within managed futures accounts. The definition of CTA may also apply to investment advisors for hedge funds and private funds including mutual funds and exchange-traded funds in certain cases. CTAs are generally regulated by the United States federal government through registration with the Commodity Futures Trading Commission (CFTC) and membership of the National Futures Association (NFA).
A managed futures account (MFA) or managed futures fund (MFF) is a type of alternative investment in the US in which trading in the futures markets is managed by another person or entity, rather than the fund's owner. Managed futures accounts include, but are not limited to, commodity pools. These funds are operated by commodity trading advisors (CTAs) or commodity pool operators (CPOs), who are generally regulated in the United States by the Commodity Futures Trading Commission and the National Futures Association. As of June 2016, the assets under management held by managed futures accounts totaled $340 billion.
PredictIt is a New Zealand-based online prediction market that offers exchanges on political and financial events. PredictIt is owned and operated by Victoria University of Wellington with support from Aristotle, Inc. The company's office is located in Washington, D.C.
Kalshi Inc. is an American financial exchange and prediction market offering event contracts. The platform was launched in July 2021. Kalshi has been described as a potential "new competitor for PredictIt", though Kalshi does not currently oversee election contracts.