What is a Prediction Market?
Examples:
President Obama will win the 2012 U.S. Presidential Election.
Mickey Rourke will win an Oscar for The Wrestler.
The Steelers will win the 2008 Super Bowl.
These are Prediction Markets. You decide if you think the Prediction will happen or not. If you think it will happen then buy YES shares, if you do not, buy NO shares. The price you pay is governed by the open market place.
You can buy on the YES side or the NO side. Each contract has one member buying a YES and another member buying the NO side of the Prediction. The amount paid for the shares is totally dependent on the willingness of the two members paying an agreed amount.
Example: Member Tom believes the Steelers have a 73% chance of winning the Super Bowl and posts his purchase request for 8 shares at $7.30. Member Bill believes the Steelers will lose and buys those 8 NO shares and pays the difference between $7.30 and $10.00 ($2.70) for each of the eight shares. If YES wins, Tom is paid $10.00 for each of the 8 shares ($80), Bill receives $0. If NO wins, Bill is paid $10 for each of his 8 shares ($80). Tom is paid $0.
Along the way to expiry (when the Super Bowl game is over) both Tom and Bill can sell their shares to other members perhaps making a profit or a loss, assuming circumstances have possibly changed since the shares were first purchased, such as a quarterback broke his leg during practice. The share prices can change just like real stock market shares do as a result of supply, demand and the many circumstances that affect the value of stocks, more on the information page...