Are you tired of horse-race political coverage? Who could blame you — you’re probably not going to make any money out of the deal. And that’s your own fault.
There’s big news from the Iowa Exchange Markets, an honest-to-pete, real-money futures market trading on the outcome of political elections. Trading on the battle for Norm Coleman’s U.S. Senate seat opened in August.
If a candidate’s chances at victory are looking good to traders, the cost of a futures contract bearing that candidate’s name or party goes up as high as one dollar. If a share bearing a candidate’s name is selling at 55 cents, it means market traders give the candidate a 55 percent chance at victory.
The news in the Senate market? The price of a Franken share has spiked in the last week while the Coleman share tanked. Here’s the graph:
Click on chart to enlarge
Last week marked a dramatic reversal for Frankin and Coleman trading prices in the Winner Takes All Market of the Iowa Electronic Markets. Dean Barkley is represented by the green “rest of field” line.
What’s it all mean? Time will tell, but Iowa Exchange Markets have predicted the popular vote winner within two percentage points in presidential elections since 1988 — besting the record of respected pollsters like Gallup. While polls can be fickle, the market approach forces participants to keep their eye on what is most likely, not what they’d most like. “It’s the news that influences the outcome of the election that you’ll see in these prices,” says professor Joyce Berg, who runs the program for the University of Iowa.
“Our numbers seem to reflect the news. We’re hearing Franken is either closing the gap or pulling ahead of Coleman — that’s reflected here.”
There are two ways to trade on the Senate race. The “winner-take-all” market concerns itself only with the victor; that’s where Franken is rallying. The “vote-share” market predicts each candidate’s percentage of the popular vote.
“The things that make this market move are the things that make any market move,” says Berg. “We see prices that are making sense and look to us like they should be predictive.”
You can put between $5 and $500 into the market, and it’s not too late. Here’s how:
• Read the Trader’s Manual here.
• Follow the Minnesota U.S. Senate Elections Market here.
• Throw your weight into the presidential contest here.