commodityonline.com will be the number one portal for commodities by 31 Dec 2009 ?

Global Derivatives markets have gone to the next step indeed.

Organized Markets have existed to establish a fair value for a service or produce.
Now we have what are reffered to as prediction markets.

Prediction markets are sophisticated markets on which binary contracts are traded.

Derivatives are financial contracts, or financial instruments, whose values are derived from the value of an underlying asset. The underlying asset on which derivatives are based can be commodities, equities (stocks), residential mortgages, commercial real estate loans, bonds, interest rates, exchange rates. Credit derivatives are based on loans, bonds or other forms of credit.

Binary contracts are double derivatives, i.e derivatives of derivatives.
Binary contracts on expiry either yield 100 or 0.

Currently one of the largest prediction market is The Ireland based Intrade(Intrade.com).


Intrade.com has created an exchange for participants to trade (speculate on) events that directly affect our everyday life, like politics, entertainment, financial indicators, weather, current events and legal affairs - these are the various trading categories.

Within each category Intrade.com lists a set of contracts, a contract is an event that will have an unambiguous result.


One trades (speculates on) what one thinks the outcome of that event will be.

For example a political contracts - Will Obama be re-elected President in 2013. There are only two possible outcomes for this contract - Yes, he will be re-elected or No, he will not.

If Obama gets re-elected that contract will close at 100. If on the other hand he fails to win the general election in 2013, the contract - Will Obama be re-elected President - will close at 0.

However, until the election is over that contract will fluctuate in value between 0 and 100 just like a stock, reacting to the news of the day and buying & selling by traders and speculators.


Other contracts listed on them included

1) Will the US economy head into a recession during 2008.(The most active contractlast traded price 91.3 on 13 Nov, this means that participants on Intrade are predicting that there is 91.3 % that US will head into a recesion in 2008, you think they are correct you buy , you think otherwise you sell (Depending on where the prevailing bid and ask are for eg in this contract it is at 91-92)
2) Will Gold close on or above 1000 on 31 Dec 2008.(currently at 15% and quite an active contract)
3) Who will win the Indian elections in April 2009? (not much liquidity)
3) will Britney spears go to the Rehab by 31st Dec 2008? (Dont wish to comment!!)

What the prices mean

Since these contracts trade between 0 and 100, One can think of the price at any time to be the percentage probability of that event occurring.
Going back to our Obama, example, lets say on December 1, 2013 the Obama re-election contract was trading at 63, meaning, traders gave him a 63% chance of being re-elected.

If you thought President Obama will be re-elected you would expect that price to go up - towards 100. In that case, if you bought one contract at 63 and Mr. Obama did get re-elected you would make the difference between your purchase price - 63 - and the closing price - 100 - or 37 points.

Who determines the prices?

Participants decide the price - along with thousands of traders around the world. Just like the price of Google stock is determined by the buying & selling activities of thousands of traders in the financial markets, the price of Intrade contracts are determined by traders,who are confident enough to back up their opinion by risking real money

How does one calculate profits and losses?
Profits are calculates in terms of PIPs, price in points, when a contract trades from 63 to 73 - that's 10 points. Each point is worth 10¢.

If you bought one Obama re-election contract at 63 and he does win the election, that contract will close, or settle, at 100. Your profit will be 37 points x 10¢ per each point or $3.70.

Settlement price – purchase price = your profit
OR
100 – 63 = 37 points X 10¢ per point = $3.70 a profit
On the other hand, if he does not win re-election that contract will settle at 0 and your loss would be 63 points.
0 – 63 = – 63 X 10¢ per point = – $6.30 a loss

Remember, One does NOT have to hold onto any contracts you buy or sell until the election, you can trade out of them any time!

Let’s take another example, you buy 6 contracts at 50 in the morning and sell them out at 73 later that day. You collect 23 points (73 – 50) times 6 contracts times $.10 for each point or $13.80 in profit.

23 points X 6 contracts X $.10 = $13.80.


Coming to contracts of our Relevance, Namely commodities contracts, there are a few active commodity contracts especially in Oil and Gold.


For serious Gold and Oil traders here is a tip, do keep checking every day these markets, they are definetly a clear indicator of the trend and also tell you what one could expect(or not expect) from the market.

Being a new market, Intrade also has a feature called suggest contracts.
And hence i plan to mail them "Commodityonline.com will be the number one portal for commodities by 31 Dec 2009" ? Any one for this bet !