PredictIt is a US-legal political exchange betting site that allows you to put your money where your mouth is when it comes to politics. Are you a policy wonk or do you think you have a knack for predicting the outcomes of upcoming elections? If so, PredictIt is where you can go to test your knowledge and win money when your predictions come true.
PredictIt offers political betting markets in the form of binary options. Users can buy and sell shares that represent political outcomes such as who will win the next election and much more. This is the only legal political betting site in the United States open to the general public.
- Only legal political betting site in the US
- Make money with your political predictions
- Unique concept with interesting markets
- No welcome bonuses or promotions
- 10% fee applied to winning trades
- 5% fee applied to withdrawals
We’ll cover the nuts on bolts of how it works shortly, but the overarching idea behind PredictIt is to buy and sell binary options in an attempt to predict the outcomes of political events such as presidential and gubernatorial elections, the next speaker of the house, whether or not someone will face criminal charges related to a scandal and so on.
The values of these contracts rise and fall in line with market expectations in such a way that prices have at times proven more accurate than polls when it comes to predicting the future. It turns out money is a real motivator when it comes to shaking off bias and making cold, emotionless predictions.
PredictIt was launched in 2014 by Victoria University of Wellington, New Zealand after receiving a no-action letter from the Commodity Futures Trading Commission (CFTC) allowing it to operate “for academic research purposes only” rather than as a commercial enterprise.
That PredictIt is allowed to operate at all in the United States is a win for political junkies, but its academic nature leads to some limitations that limit the full the site’s full potential.
For one, PredictIt limits all traders to a maximum investment of $850 into any single position. No matter how confident you may be in an outcome, the most you can throw down onto any one prediction is $850.
PredictIt also enforces an upper limit of 5,000 traders in any particular market, which can cause liquidity problems if a large number of traders buy into a market and then just sit on those positions without trading. Even so, PredictIt does manage to generate significant volume. The Futures Industry Association, for example, reported that trading volume touched 13.7 million on the day of the 2016 US election.
The CFTC also requires PredictIt to “prominently disclose that the proposed market is unregulated, experimental, and being operated for academic purposes.” In other words, PredictIt is not a highly-regulated betting site and buyers should beware.
Caveats aside, PredictIt is an interesting betting site that has so far proven safe and well-run. New markets are added frequently, and trading volume is usually more than sufficient for the major markets – especially those dealing with national politics.
How PredictIt It Works
To put it simply, PredictIt allows customers to trade “yes” and “no” shares on the outcomes of future political events at prices ranging from $0.01 to $0.99 per share. If the outcome takes place, the yes shares are redeemed for $1 and the no shares expire worthless. If the predicted outcome does not take place, the no shares are redeemed for $1 and the yes shares expire worthless.
For example, consider a basic Presidential election market in which the question being asked is whether or not the Republican nominee will win. Anyone who likes the Republican’s chances will buy yes shares on that outcome in anticipation of redeeming those shares at $1.00 a piece later. Anyone who think the Republican is likely to lose the election would buy no shares in anticipation of redeeming those for $1.00 a piece later.
Prevailing market sentiment pushes and pulls prices between $0.01 and $0.99 while the market is still live. For example, if sentiment turns against the Republican candidate, prices of yes shares will drop as people try to sell off those shares. Meanwhile, “no” share prices would rise as people buy into those hoping to cash in on them when the Republican loses the election.
You can buy and sell shares at any time or hold them to expiration if you’re confident your predicted outcome will come true. Thus, you can buy a bunch of no shares for, say, $0.30 each and later sell them at $0.55 to exit the position and lock in a profit. Likewise, you can sell off your shares if the market moves against you to cut your losses – as long as someone else is willing to buy the shares you’re selling.
Buying and Selling Shares on PredictIt
The actual process of buying and selling shares on Predict it will be familiar to anyone with experience in financial markets or binary options. You can buy shares by first selecting the market you want from a page that looks like this:
Select the market you want to move on to the next page, which is where you’ll buy and sell shares for that market. This page shows trading volume and current prices for yes and no shares.
The following screenshots show the current prices for shares related to whether or not Donald Trump will be the 2020 Republican nominee for president. Let’s analyze this market from both the yes and no positions.
First, we see the best offer for yes shares is $0.69 and that there are 40 shares available at that price. Select the maximum price you’re willing to pay and how many shares you want and PredictIt will attempt to fulfill your order according to those conditions.
Look closely at the above screenshot and you’ll see there are only 40 shares on offer at $0.69. If you wanted to buy 50 shares, you would need to increase the maximum price you’re willing to pay in order to have the order completely filled. If you raise your maximum price to $0.70 and submit the order, PredictIt will get your first 40 shares at a price of $0.69 and then move on to the next best offer to get ten more shares for you at $0.70.
In buying these yes shares, you are essentially betting that Trump will be the Republican nominee in 2020. This is a fairly safe bet as sitting presidents tend to earn the party’s nomination by default when running for reelection. That probability is reflected in the current price of $0.69. If you buy these shares and Trump does earn the GOP nomination, your shares would expire at $1.00 for a gain of $0.31 per share.
Now, let’s say you’d rather bet on Donald Trump not being the Republican nominee for President in 2020. In this case, you would select the “buy no” button to see current prices for no shares. In this example, the no shares are currently trading for $0.32 and there are 349 shares available at that price.
This is a bit of a riskier proposition because again, sitting Presidents are rarely opposed by their own party. However, the Trump presidency has been anything but usual, so you might just decide to take the risk for a shot at winning a bigger payout. If you’re correct in this case, you stand to gain even more if your prediction is correct.
This process of buying and selling shares is where strategy comes into play. Something to keep in mind is that you don’t necessarily have to be 100% confident in your prediction coming true – you can instead look at shares as undervalued or overvalued.
For example, let’s say you estimate Donald Trump has a 50-50 shot of being the 2020 Republican nominee. Even though you’re completely undecided in your actual prediction, you could confidently buy no shares in this market because they are underpriced at just $0.32, which roughly equates to the market giving him a 32% chance.
In this case, you might also consider this market for a hit-and-run move. You might decide that at a price of $0.32, the no shares have a lot of room to run. You also know the news cycle has a tendency to run with scandalous stories, which are likely to give no shares a bump – at which point you could sell out of your position for a tidy profit.
The Big Catch: Fees
PredictIt would earn a glowing review if it wasn’t for the high cost of business imposed on traders. All winning trades, whether you sell early for a profit or hold a position until it expires at $1, are assessed a 10% fee on net profit. Additionally, withdrawals are assessed a 5% fee on the amount of withdrawal.
These two fees, combined with the occasional wide spread in illiquid markets, add up to a significant cost that’s hard to beat. Just to break even on an individual trade will require you to close your position for more than a 10% profit – and that’s before taking the 5% withdrawal fee in account.
PredictIt is a fun way to test your political wit and possibly earn good money at times, but the limited positions sizes, limited liquidity and high fees make it difficult to consider this a serious trading platform.