InTrade was awesome — here’s what all the critics got wrong
Joe Weisenthal Business Insider
Sunday, Irish betting site InTrade announced on its website that all trading was being halted. The language is very ominous. It’s unclear if there will ever be trading again.
The site was controversial.
It was popular among pundits and amateur fans of U.S. politics, as it allowed people to place bets on various real-life event outcomes (Would Obama win? Who would be the GOP nominee? Will the Supreme Court uphold Obamacare).
When it came to dealing with U.S. users, the company was always operating in a clearly gray area of the law, as it crossed the line into both futures trading and online gambling. Late last year it totally blocked U.S. users, as it was sued by U.S. regulators.
But all legal issues aside, the premise of the site was awesome, and its most vocal critics were wrong.
One vocal critic was Barry Ritholz, who after the Supreme Court upheld the constitutionality of Obamacare, wrote: InTrade Blows It Again: ACA Upheld By SCOTUS.
He posted the attached chart showing that right before the decision, InTrade was placing an 80 percent chance of Obamacare being ruled unconstitutional. The chart is supposedly evidence that InTrade “blew it.”
But Barry’s argument was flawed.
The point of InTrade was not to be “right.”
The point of InTrade was to create a market where popular thinking was quantified.
The fact of the matter is that prior to the SCOTUS ruling on Obamacare, it was clearly conventional wisdom that the law was going to be struck down. Obama’s lawyers did not do well in oral arguments, and there were even rumors that the Supreme Court had decided to kill it.
InTrade accurately captured in a number what people thought, that Obamacare was toast.
InTrade was wrong, but only because conventional wisdom was wrong.
In Barry’s post he lists a number of other times that InTrade blew it, such as whether or not the GOP would hold the Senate in 2006. A month out traders thought it would, but in the end Democrats ultimately captured the Senate. But again, even on election night, the Democrats winning the Senate in 2006 was a big shock! Conventional wisdom is occasionally wrong.
The test of a market is not whether it’s “right” but whether it adequately captures current information and the sentiment of informed participants. InTrade did a good job of that. Sometimes information is misleading and informed participants are on the wrong side of events, but that happens in every market in the world.
If a stock runs up into earnings, and then earnings suck wind, and the stock collapses after hours, do we condemn the stock market for being flawed? Of course not. It just happens sometimes that participants get things wrong, and this happened on InTrade, although really not that often.
For more on this story go to:
See also:
Intrade shuts amid investigation
From BBC
Online trading platform Intrade has ceased all trading activity pending an investigation.
In a statement on its website it blamed the halt on “circumstances recently discovered… that may include financial irregularities”.
The move means users will not be able to withdraw money from their accounts.
Dublin-based Intrade allows users to place bets on future events by buying and selling contracts in a similar way to the financial markets.
Users can bet on everything from who will be the next Pope to how much snow will fall in a given winter.
It is favoured by academics and journalists who often use the site’s odds as indications of public sentiment, particularly when it comes to predicting US presidential elections.
‘Investigate further’
“With sincere regret we must inform you that due to circumstances recently discovered we must immediately cease trading activity,” Intrade said in its statement, saying the shutdown had been required under Irish law.
“These circumstances require immediate further investigation, and may include financial irregularities.
“During the upcoming weeks, we will investigate these circumstances further and determine the necessary course of action.”
The company did not elaborate, and it is not clear if or when it will resume operations.
In November Intrade suffered a severe blow to its business when regulators forced it to suspend all trading in the United States – its biggest market.
The US Commodity Futures Trading Commission (CFTC) filed a lawsuit against the company, arguing that it violated US trading laws.
It lost tens of thousands of users as a result of the legal action.
Intrade was founded in 1999 by John Delaney. He died in May 2011 while attempting to climb Mount Everest.
For more on this story go to:
http://www.bbc.co.uk/news/business-21743455
Note: From Wikipedia
Intrade is an online trading exchange website. The website’s members bet on the outcomes of non-sports-related future events. Intrade was founded by John Delaney in 1999[1][2] and acquired by Tradesports in 2003.[3] Dublin-based owner Trade Exchange Network Limited also operated TradeBetX.com, which focused on European interests. As of January 1, 2007, Trade Exchange Network divested its interests in Tradesports and TradeBetX.com to a newly formed company, TradeSports Ltd. These two websites offered only sports-related trading markets until they were closed in 2008, while Intrade.com continues to offer exclusively non-sports exchange markets (politics, finance, entertainment, current events, transportation, legal, weather, pop culture, etc.).
Intrade’s system is a prediction market which allows individuals to take positions (trade ‘contracts’) on whether future events will or will not occur. An example event is a political election, which is almost always settled in a well-defined and verifiable manner. The contract might be “Mitt Romney to win 2012 U.S. presidential election.” Other events include financial predictions, such as “NASDAQ Average to close higher today.” Intrade facilitates trades between members, charging a monthly fee,[4] but does not participate in trading itself.
