The US “stock market” where political futures are traded

With all the focus on the US mid-terms one of the world’s great political betting arenas comes into its own – the Iowa Electronic Markets. This is operated by the state University in Iowa as an academic exercise on how markets function and has grown into a remarkable place where what are termed “political futures” are traded.

What happens is that the IEE sets up a market and defines “stock” to trade in. Punters from round the world can register and you then buy and sell what is on offer. So for the next month’s mid-terms four different contracts are available covering all the options.

RH-RS (red). Punters who buy this “stock” are betting that the outcome next month will be a Republican House of Representatives and a Republican Senate. The latest price is about 33 cents and if this is the outcome then those who have bought will get $1 per stock unit bought. Those who have sold will make the price they have traded at if this is not the outcome and would lose the difference between the price they sold at and $1 if they are wrong.

RH-NS (green) is a market in those who bet that the House of Representatives will stay Republican but the party will lose control of the Senate.

NH-RS (black) is for those betting for or against the notion that the Senate will stay Republican but the House won’t.

NH-NS (blue) is for those betting for or against the notion that the Republicans will lose control of both the House and the Senate.

As can be seen by the chart prices change sharply and there has been a change in sentiment about Republican prospects. At the opening of the market in June when the market view was that George Bush’s party would hold onto both with the stock “trading” at 66 cents. This is now right down with punters thinking that the Republicans will hold onto the Senate but not the House.

It’s quite interesting comparing the market sentiment in Iowa with the Betfair mid-term markets that have just been opened. Betfair punters seem to be a little bit more bullish about the prospects for the Democrats than Iowa traders.

For anybody betting on these elections the IEM is worth a regular look. You get a real sense of how US political gamblers are assessing the party prospects.

Mike Smithson