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Definition of Prediction Markets
Stock exchanges find the price of stocks, and futures markets find the price of commodities. Prediction markets find the probability of an event happening, and the greater the probability the greater the value of the market. If the price is higher than it's perceived value, no one buys and the price drops to a point where it will sell.
How it Works
DaVinciTrade is a Predictive Analysis Exchange which forecasts uncertain future events. The percentage numbers posted on each prediction (market) reflects the probability of the event occurring. The percentage number posted is a result of the shares most recently purchased by members either agreeing or disagreeing with the outcome of the prediction. You buy YES shares if you agree with the prediction or you buy NO shares if you disagree with the prediction.
The market finds its own Yes Probability Percentage or "yes" the prediction will happen as a direct result of the market trading of the members, just like stock exchange stocks find their price by supply, demand, circumstances, news of the day, intuition and knowledge of the trader.
Simply put, a Market Prediction Probability Percentage is created here at DaVinciTrade as soon as members buy shares of opposing sides of the prediction in any market posted on the site. That probability percentage number is equal to and the result of the last price paid for shares by the members.
As is any other stock trading exchange, members can post proposed offers to buy and sell shares in a market. A member can both buy and sell shares on either the YES or NO side of the prediction. As soon as one member meets the other's price for a share, the transaction is completed by the exchange and paid from the members' account.
See more by clicking How to Trade in the menu above.
Prediction Accuracy
As a market grows in volume of shares bought and sold on each side of the prediction, the more accurate the prediction becomes because of a theory known as "The Power of Crowds". The wisdom of a crowd is considered greater than any one member of the crowd. Therefore experiments have shown that the larger the "group" participating in a decision or prediction, the more accurate is their forecasting. Click "videos" in the menu above for more info on this subject.
How to Profit From Trading
All references to "Profit" "fees" or "money" here at DaVinciTrade.net are "play" money, not real currency or funds. This site is for educational purposes only and you must be 18 years of age or older to participate.
The better the ability of a member to predict the outcome of a future event, and buy and sell shares accordingly, the better the opportunity to make profits, just like in the stock market.
The difference and some say the "advantage" in this exchange, is each market has an "expiry", or end date. Also all markets on this exchange end in paying the member $10 per share, regardless of what he paid for the shares, when the market ends favorable to his position of ownership of Yes or No shares. When a market ends unfavorable to his position, he receives $0.00. Also prior to expiry a member can close out altogether by selling all of his shares to another member.
All Markets on DaVinciTrade end in only one of three ways:
1. The event happens as predicted. Holders of YES shares are paid $10 per share.
2. The event does not happen as predicted. Holders of NO shares are paid $10 per share.
3. In rare cases the Market is cancelled due to unforeseen circumstances or acts of God. The Terms of Use and/or Market "Rules" for each Market cover such an occurrence in which case all traders are refunded their investments in that Market to their accounts.There are two ways to profit by trading, the traditional profit of buying shares low, selling high of course. The other way is to correctly buy Yes or No shares and holding your shares until expiry and then if you are correct you will profit at the expiry of that Market should the prediction occur or not occur as predicted, according to the Market rules. Every share expires at $10 to the holder of Yes or No shares who is correct regarding the Prediction. The holder of shares not in agreement with the prediction "result" is paid $0.00.
Any profit you will accrue on any trade will always come from the losses of another trader, and vice versa, with your losses becoming profit of other traders. DaVinciTrade only charges trading fees and does not risk funds here at the exchange.
The Numbers Explained
All trading market prices are displayed as U.S. dollars. The Percentage Probability displayed converts as follows: 1% is ten cents, 10% is one dollar and 100% is ten dollars. A YES share is purchased when you are in agreement with the Prediction. You buy NO shares when you disagree with the Prediction.
If you bought NO shares, you are hoping the prediction will not occur. If you bought YES shares you are hoping the Prediction will occur. The purchase of one YES share by one member and the purchase of one NO share by another member creates one contract. The purchase price for the YES share combined with the purchase cost of the NO share will always total $10.
At expiry either the Prediction will occur or it will not. The $10 will be paid to the member holding the share ending favorably to him or her.
The Cost of Shares and Percentages Explained
All newly posted Market Probability Percentages start with the word "NEW" which means "new market". The starting actual percentage is posted when two members buy the first two shares, one buying a YES share and another member buys a NO share. After evaluating the Market Prediction any member can post a desired purchase price for shares on either the YES or NO side of a Prediction Market. When another member posts a matching desired purchase price of the opposing side of the same Market, a trade has occurred resulting in filled orders for each member. Only when two members agree on the purchase price for shares can a trade occur. The most recent agreed price paid for shares in any Market is represented by the "Percentage Probability" posted on each Market i.e. 63% means the last share actually purchased was $6.30.
Example: Buying one YES share of a Market Prediction at $2.00 can profit $8.00 if the Prediction happens as predicted since all Markets pay out at $10.
In this example the member has committed $2.00 per share to buy a YES in agreement to the Prediction. His YES share purchase is filled because another member committed to buy a NO share at the same $2.00. That member is committing $8.00 for the NO share hopeful to profit $2.00 per contract. When that Market expires in agreement with the Prediction the $8.00 profit comes from the aforementioned "member/trader" who looses his funds because that Market expired unfavorably for him.
Conversely, if the Market expires such that the Prediction does not occur, the member holding the YES share looses his $2.00, which will go to the buyer/owner of the NO shares of that Prediction Market. Shares purchased and held to expiry never loose their value which is their original price paid, until expiry. Newly purchased shares can have different and updated prices as the market conditions change causing traders to re-evaluate the price they are willing to pay for shares, exactly as in the stock market.
DaVinciTrade operates like a futures market, but not linked to traditional commodities. Each Prediction Market is judged either YES it will happen or NO it will not happen with an ending time called an "Expiry".
The price of any share then represents the market's view of the probability of the event outcome as represented by that most recent trade.
The power of crowds comes by the resulting view point of large numbers of people. Large groups are consistently more accurate then any individual in the group. The larger the group the more non-biased equilibrium results. Typically the larger the crowd, the more accurate is their prediction. It is the result of aggregate opinion, incentive and the diversity of the crowd members that form the DaVinciTrade Prediction Market accuracy in making predictions.
Roll's studies found that orange juice futures traders were better at predicting weather than weathermen. Berg and Rietz studies found that a political prediction market is more accurate than polls.