Who ever said you needed a stock market to make money?
Think you know who's going to win the presidency? Want to guess how much snow will fall in New York this year? Ever thought about putting money on whether Osama Bin Laden will be captured? And yes, would you like to earn a 30% return if O.J. Simpson is found guilty?
Now you can. It's incredibly easy, works a lot like trading stocks, and you don't have to be anywhere near Las Vegas to do it (thank heavens). Welcome to Intrade.
This online exchange works a lot like other financial markets. You buy and sell contracts that reflect the odds placed on different events -- but with Intrade, you can wager on a whole slew of crazy events, not just stocks and bonds.
And I thought video poker was fancy
Intrade lets you place bets on everything from Barry Bonds being found guilty of perjury to the odds that the Pakistani elections will be held on or before Feb. 15. The exchange provided more than 60,000 different events to trade in last year, compared to roughly 15,000 publicly traded companies in the U.S. And just like the stock market, there's some big money to be made -- and lost -- for those willing to try their hand at predicting the future.
For example, the "2008 President Obama" contract currently fetches $5.16. If Sen. Obama wins the presidency, the contract will be worth $10; if he doesn't, it'll go to $0. The $5.16 is essentially the market wagering that Obama has a 51.6% chance of winning, as of today.
You can even put money down on the odds of E*Trade (Nasdaq: ETFC) going bankrupt in the next few months, or that the proposed merger between XM Satellite Radio (Nasdaq: XMSR) and Sirius (Nasdaq: SIRI) will actually happen before this summer.
Can't wait that long? Don't worry -- you can bet on where the market will be trading at five different hours of each trading day. Not exactly what I would call patient investing, but hey, there are a million ways to make a buck out there.
Other contracts take more traditional approaches that provide a bit more protection. Suppose you've been following Microsoft's (Nasdaq: MSFT),recent buyout bid for Yahoo! (Nasdaq: YHOO). Investors anxious to predict how such a deal will alter the search market can bet on the percentage of total market share that Yahoo!, Microsoft, and Google (Nasdaq: GOOG) will each have throughout 2008.
Let's say Google loses its stronghold, finishing the year with 40% of all search traffic. The price of this contract, which currently trades at $6.50, would close out at $4. If Google remains on its path toward global domination, and ends up with a total search-industry monopoly, shares would close out at $10. You get the idea.
Juicing off The Juice
You probably never thought you'd see O.J. Simpson's name in an investment article, but yes, you might actually be able to make money off his recent behavior. Contracts wagering whether he'll be found guilty on at least one Las Vegas robbery charge trade at $7.75. If he is found guilty, bettors holding the contract will make a $2.25 profit -- a return of almost 30%. At that rate, truTV might someday rival CNBC for investment advice.
Nostradamus meets the market?
How well do these contracts foretell the future? According to a recent article in The Wall Street Journal, pretty darn well. During the 2004 presidential elections, Intrade bettors called the winners correctly in every state but Alaska.
If the contracts' predictive ability holds true in the future, all signs point to an Obama-McCain battle this fall, with Obama coming out ahead. The Dow Jones will trade above 12,500 by year's end, E*Trade will easily avoid bankruptcy, and the highest income tax rates could approach 40% by 2011.
But, hey, don't take my word for it. Mr. Market has been known to be less than prophetic from time to time.
Until then, check out this related Foolishness:
