If the Commodity Futures Trading Commission approves it, Americans will soon be able to trade in political futures on a site based in the United States.
The Pittsburgh Post-Gazette reports that the federal agency that regulates futures markets is reviewing a proposal by the North American Derivatives Exchange, otherwise known as Nadex, that would allow the company to sell shares in political futures, where people buy and sell contracts in possible political outcomes.
Approval would put Nadex in competition with websites like Intrade and Paddy Power, both based in Ireland.
On those websites, people by shares in a certain outcome, for instance, Mitt Romney winning the Republican nomination. The relative price of the shares, which for Nadex would range from zero to $100, reflects the probability of the outcome happening. For instance, at press time, that outcome is trading at $9.12 on Intrade, where the maximum price for shares is $10, meaning that investors give the former Massachusetts governor a 91.2 percent chance of taking that prize.
Nadex would trade in races for the presidency, the Senate and the House of Representatives.
Nadex contracts would be “winner-take-all,” meaning that if you bought shares in a Romney nomination for $20 and Romney did get the nomination, you would collect $100 for each share, while if he didn’t, you would lose the $20. No single investor could buy more than 2,500 of any one type of contract.
Opponents of approval say that trading in political futures is more akin to betting than investing.
“It should be regulated exactly the same as legalized online sports betting, not investing,” Mt. Lebanon financial planner Robert Nusbaum told the Post-Gazette.
Others have cited concerns that someone could rig the trading, buying up loads of shares to suggest that a certain outcome is more likely than it really would be. Political observers, especially the New York Times’ Nate Silver, often use prices on Intrade as a way to gage the state of a contest.
But experts in futures markets reportedly have found that there is little evidence to suggest that someone could rig the market for an extended period of time.