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Investors wager on presidential race

January 29, 2008 12:00:00 AM PST
There's a new poll released nearly every day now on which candidate voters favor in a state primary or caucus race. Many people have their own opinions about who they think will win the presidency. Some savvy investors are putting money on their political hunches.We all know how volatile the stock market can be. But if you want to invest on who's going to get in the White House, you can do so online. Prediction Markets allow investors to legally wager money on the outcome of the presidential race.

While the presidential candidates are making their pitches for your vote, thousands of people are putting their own money on who they think will win. Professor Joyce Berg is the director of the Iowa Electronic Markets run by researchers at the University of Iowa. Investors can wager from $5 to $500 to buy contracts on the presidential candidates, or the winner of the November election.

The price for one Hillary Clinton contract now sells for about 60 cents, which means investors think she has a 60 percent chance of winning the Democratic nomination. If she does, each contract is worth one dollar, a return of about 67 percent.

"A person who thought she was a shoo-in for the nominee would want to buy at that price. Buy low, sell high -- just like any other market," said Berg.

You can buy and sell contracts anytime. The prices are updated every 15 minutes and they react instantly to news and election results.

Last October, when John McCain was considered a long shot, the price of his contract was about five cents. Now as the frontrunner, it's about 56 cents, up more than 1,000 percent. So if you invested the maximum $500 at the low, you could sell your contracts now for $5,650.

If McCain becomes the Republican nominee, your investment will be worth $10,000. If he loses, it's worth nothing.

Researchers at the University of Iowa say the political markets have been extremely accurate in forecasting candidates since the political market was launched in 1988.

"Our traders are real money-motivated, so even though we're small stakes, traders seem to be interested in those small stakes," said Berg. "And, they have incentive to think hard about who they think will be the nominee or who will be elected as president."

Remember, you can only invest up to $500 and there's a $5 fee to join.

Right now the Iowa Electronic Markets have the Democrats listed as favorites to win the White House.

 

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