For some people, learning the mechanics of investing can be difficult. Even after you manage to choose an appropriate investment, open an account with a financial institution, and deposit some money with which to make a purchase, actually pulling the trigger and buying a stock or mutual fund can be a scary thing to do. Just imagine: An accidental extra zero in the wrong column could leave you with a very expensive mistake.
Most online brokers offer tutorials to help beginning investors avoid making costly errors in entering orders. However, a graduate school has given investors a fun alternative that can teach you about how markets operate and also offer you a chance to invest in the prospects of your favorite political candidate or party.
The University of Iowa's Tippie College of Business developed the Iowa Electronic Markets (IEM) in 1988 as a tool for teaching students about market mechanics and as a way to gather research for studies about investor behavior. Anyone is allowed to open a trading account and to trade on certain markets, including the IEM's political markets, with deposits limited to a maximum of $500.
Once you open an account, you can place bids to buy contracts or post asking prices to sell them. Each contract entitles its owner to a payment of $1 upon a certain event. For instance, one market that is currently available offers two different contracts -- one that pays $1 if the Republican Presidential candidate in 2008 gets more votes than the Democratic candidate, and another that pays $1 if the Democratic candidate gets more votes than the Republican. Similar markets are open for various scenarios for control of Congress after the 2006 elections, as well as for decisions on interest rates from the Federal Reserve.
The best thing about the IEM is that it teaches you how markets function. You can place market orders if you want to buy a contract immediately, or you can place a limit order at a lower price, in hopes of opening your position more cheaply. Since most trades involve pennies instead of thousands of dollars, you can make mistakes that you will learn from without hurting your wallet. And if it happens that you have some fun in the process making money on politics, so much the better.
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Fool contributor Dan Caplinger has been trading on the Iowa Electronic Markets for years. Currently, he has positions favoring a change in congressional leadership and continuing hikes in short-term interest rates. The Fool's disclosure policy is part of your Foolish Bill of Rights.
