Topic: Has anyone heard of these betting exchange markets? Used them?

[shock]

I just heard about them recently. It basically lets you bet money on the likelihood of world events occurring in an open market.

Here's a short FAQ for one: http://www.intrade.com/v4/misc/howItWorks/theBasics.jsp

Each event fluctuates between having a value of $0 and $10 per share. Once the event occurs or does not occur, the shares will go to $10 or $0, respectively. The market decides the price of the shares in between, and this done based on the perceived likelihood of the event occurring. Important to remember that: yes = $10, no = $0.

To illustrate: there's one on there about Mitt Romney becoming the Republican nominee. Right now, shares are going for about $7, so he has about a 70% chance of winning according to these random people. If I bought 100 shares at $7 for a total of $700 and Romney ends up winning, then the price would go up to $10 per share.  This means I would win the difference between $7 purchase price and the $10 final price, and there's no transaction costs or anything. So $3 per share x 100 shares = $300 profit. That money comes from all of the people who bet on the other side of the issue, who lose all of their money.

Seems like a gambling addicts wet dream. I wanted to play around a little, but 1) not sure of legality in US, 2) they don't take US credit cards, 3) there's a $5 a month charge for account usage.

Womp womp

[ren]

That sounds kind of like a Catastrophe Bond (http://en.wikipedia.org/wiki/Catastrophe_bond) but taken to a new level.

[Cobra951]

It just looks like plain gambling to me, with the procedure changed to make it look like something else.  Interesting idea.  How do the people who run this make any money (even just enough to support the infrastructure)?  It seems to me all money that goes in has to come back out at some point, since odds even out in the long run.  (Bernie Madoff ignored that.)  Where's the cut for the "house"?

[shock]

I don't see any house cuts other than the $5 a month charge for having an active account on the website.  I guess that plus advertising is enough to keep them afloat.  They aren't actively doing much besides paying for the bandwidth and dealing with customer accounts.  Guessing the costs are pretty low.