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Commentary > Bid and Ask

The Kerry trade
Different election markets are giving different odds on who takes the White House.
February 5, 2004: 10:36 AM EST
By Justin Lahart, CNN/Money senior writer

NEW YORK (CNN/Money) - What sort of odds are people laying on this November's elections? It depends on who's doing the betting.

Over the past few elections, politicos and Wall Streeters trying to get a bead on who's on top in the race for the White House have come to carefully watch the Iowa Electronic Markets Presidential Vote Share Market, run by the University of Iowa, which got its start in the 1988 election.

It's an experimental futures market, a forerunner to the Defense Department's "terror futures" which caused such a flap back in the summer. To play, investors buy contracts on different election outcomes, with a payoff equal to whatever percentage of the two-party popular vote a candidate ends up getting. They're using real money, because researchers have found that real-money bets are far more predictive than matchstick ones.

If a Democratic candidate loses his "Joementum" and decides that it's "Joever" and takes himself out of the running, then the contracts predicting a win for him and contracts predicting a win by the Republican candidate over him are rendered worthless.

In line with some recent polls, the Iowa market says things aren't going so well for President Bush right now. Slap all the contracts together, and it's predicting that the Democrats take 52.4 percent of the vote.

But Iowa isn't the only game in town anymore. Tradesports, the Dublin-based outfit that brought us the Saddam futures, is also running a Presidential futures market.

It's constructed a little bit differently than the Iowa market. Tradesports uses all-or-nothing contracts. You buy a Bush contract, Bush wins, you get a full payout -- in this case, ten bucks. Bush loses, you get nothing. Current contract prices translate into what sort of chances market participants think Bush has of winning.

Right now, the Bush contract suggests the President has a 66.5 percent chance of getting reelected.

Why the big difference between what the Iowa market says and what Tradesports says? Maybe it has something to do with the sorts of players each market attracts.

Bid and Ask
Written by: Justin Lahart

Iowa got its start at a University, after all, so it makes sense that it would attract more bleeding-heart commie pinko academic types. Tradesports, on the other hand, was started by a bunch of former traders, so it probably attracts more big-business-loving war-monger crypto fascists.

But whatever the reason, there is a significant pricing difference between these two markets -- an arbitrage opportunity that you'd expect some savvy trader to take advantage of. Yes, the contracts are constructed a bit differently, but surely there's a way to go long Bush on Iowa, short him on Tradesports, and make some surefire coin.  Top of page

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