Traders bet on an Obama-McCain match up

Political prediction markets let investors wager on the outcome of the White House race.

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By Alexandra Twin, CNNMoney.com senior writer

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NEW YORK (CNNMoney.com) -- Want to know the results of Tuesday's presidential primaries? According to traders betting on Intrade and the Iowa Electronic markets, John McCain and Barack Obama will be the winners.

The two electronic prediction markets, which let investors bet with real money on who they think is most likely to be elected, also anticipate a McCain-Obama match-up come November.

Intrade, for those not familiar, is a Dublin, Ireland based online futures exchange that lets participants from around the world bet on everything from national elections to the amount of snowfall in New York's Central Park during the month of March.

It is widely watched and often right. One notable miss: It incorrectly predicted that Sen. Barack Obama would win both the New Hampshire and California primaries this year. He didn't.

Intrade CEO John Delaney estimates that the site has seen about $60 million in trades relating to the U.S. presidential election cycle since contracts began trading following election day in 2004. The level of trading has heated up significantly since the fall of 2007.

And the numbers suggest that traders think an Obama-McCain match up in November is most likely. Traders are currently betting that Clinton's chances of winning the nomination are just 14.2% versus Obama's 85.1% likelihood.

"The overall trend in the nomination market has been one of very significant Obama strength, but in the last few days, there has been a tiny bounce back for Clinton," said Delaney.

The Iowa Electronic markets, an online futures exchange operated through the University of Iowa, shows Clinton's chances are a little better. According to traders betting there, she has a roughly 18% chance of winning the nomination, versus Obama's 79% chance.

Unfortunately for Mike Huckabee hopefuls, both futures markets show traders are betting that Sen. John McCain is set to trounce the former Arkansas governor in the Republican primary, with McCain rating a more than 90% chance of winning the Republican nomination.

Both futures markets show that of Obama, McCain and Clinton, traders think Obama is most likely to win the presidency. He has a 57.6% likelihood versus 35.8% for McCain and just 8.5% for Clinton according to bettors.

"Hillary Clinton Lifeline" looking weak

Among the many facets of the election available to bet on, Intrade also offers what it calls "Hillary Clinton Lifeline" futures, which allow traders to speculate on the outcome of the Ohio, Texas and Pennsylvania primaries - show investors think the New York Senator currently has only about a 13% chance of winning all 3 primaries.

Texas and Ohio are on Tuesday and Pennsylvania is on April 22. The range of bets on Hillary's chances of winning all 3 since the contract began on Feb. 25 has been between 8.5% and 18%.

Clinton is considered the frontrunner in Ohio, while Obama is the front runner in Texas and Pennsylvania. Delaney said that Obama jumped from just a 40% likelihood of winning Texas to a more than 60% likelihood, following the results of the Feb. 19 Wisconsin primary and Hawaii's Caucus, both of which he won.

How does it work?

The contracts move like real stocks, with traders determining the value as they bet on what they think the outcome of the event will be.

Intrade contracts trade between 0 and 100 for a set period of time, with the higher the number, the more likely the candidate is to win. Currently, Obama trades at around 85, or at an 85% likelihood of winning the Democratic nomination. Each point is worth $0.10.

When the contract expires and the official results are in, if Obama has won, the contract is considered to have closed at 100. If he lost, it closed at 0. But between now and the end of the contract, the price sways like a stock and you can buy and sell at will.

So how does it work with real money? Let's say you bought one Obama Democratic nomination contract at 85 and he ends up winning, which means the contract closed at 100. Your profit is 15 (the difference between where you bought the contract and where it closed) times $0.10 per point, or $1.50.

If he loses, the contract closes at 0 and you lose 85 times $0.10 or $8.50. Intrade also takes a commission of $0.5 per contract.

The Iowa Electronic Markets operate in a slightly different way - you bet in a range of 0 to $1.000 in increments of $0.001 through a set expiration date. The non-profit Iowa futures market doesn't take a commission.

Of course, no matter how predictive these markets may be, no one can say for sure which candidates will come out on top after Tuesday's polling. The one sure bet: Plenty of people will be checking out Intrade and Iowa's market as they try to handicap the outcome.  To top of page

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