Having featured one online exchange last week, I’m on a roll this week by featuring another. This is called TradeSports, and features real money. It’s a glorified gambling site, but you gamble against others, not the owners of the site, who instead make their money by taking cuts in every transaction. The site sets up “contracts” that are tied to some event, say that Team X will beat Team Y in some sporting fixture. If I think this will happen with slightly greater than 10% probability, then I make a bid of $10. If someone else is willing to sell at my price or lower, then I get my contract. If X do win their game, then I get $100 back (net gain $90; the contract has finished with a value of $100). If they lose, then I lose my $10 (the contract’s final value was $0). The point is that the money I win or lose only passes through TradeSport’s hands; this is ultimately a transaction between me and the person that sold me the contract.
The key thing (and this took me a while to figure out) is that contracts are only created to be sold to people wanting to buy through short-selling. For me to be able to buy at $10, someone else will have to have borrowed a contract to sell to me. If the final value is $0, then it costs them nothing to return that contract to the Great Lender in the Sky (and they have won $10, which came from me). If the final value is $100, then they have to pay that much to buy a contract to return to the Great Lender. They’ve made $10 from a sale already, so now they have to stump up another $90. This $90 is my winnings.
The icing on the cake is that the contracts are fully tradable, so that you can try to close a position that is looking unhealthy as the game develops. As well as many opportunities to bet on the favourite American sports, TradeSports provides a few non-sports gambles, including wagers on whether or not Saddam Hussein will still be in power at the end of March, April, May and June. You can track people’s perceptions of the war’s progress just by looking at the price of the March contract. As I write the price is at about 30. Yesterday it was briefly up around 75. No doubt the true gambler makes money off these swings in mood just as much as off the eventual outcome.
These market induced predictions are also supposed to be quite accurate as a rule, which was how Salon came to mention it.
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