How to use intrade: The online prediction market

OK, so that sounds very cool and high tech, but what does it really mean and how does it work? How do I use Intrade?

Basically, numerous contracts exist across the board for items from Political candidates (Intrade has been used a LOT by Matt Drudge to show how trends are moving for the Republican Presidential Candidate).

Trading positions are provided based on standard trading terms. Investors bet on whether events will happen (long) or not (short). The trading unit is a contract with 2 possibilities and a settlement value (usually $10). Contracts trade from $10.00 to $0.01, based on peoples predictions of the events likelihood. If the event occurs, the contract settles at $10; otherwise, the contract settles at $0 in value.

The current price of the contract is thus the market's opinion of the probability the event will occur! Pretty cool, and a great way to put your money where your mouth is if you fancy yourself as a prognosticator....

In terms of fees, Intrade charges a flat rate of $5 a month to maintain your account, but takes nothing on trades. It also takes a small fee to cover funding of your account from Bank Wire/ Check.

Trick 1: Watchout for the spread: As for most trading/ spread betting, you have to watchout for the Buy/Sell spread, as this can eat into your earnings significantly! Basically, this is the difference between the current "buy" and "sell" price, so if you bought into a position and immediately exited it, what would it cost you? Spreads are wider on illiquid markets like those on foreign politics or long term contracts, and shorter on liquid ones

Trick 2: Payout: Inputting money has to be done by credit card (outside of the US) or bank wire/ check. Bank wires and checks are free to input money, but wires are much quicker. Alternatively if you don't want to use either of these, some members will transfer money for you in exchange for money on Paypal. Find out in the intrade forum! When you want to withdraw money, check withdrawl costs 4 euros, while back wires cost at least 30 euros. Take a check!

Trick 3: Variation: While fundamentally, a model such as this is a fantastic way to poll the population, setting up a profit motive for people to provide a representation of what they think, Intrade does suffer from irrational optimism and huge variations. See the Republican national candidates, based off a small number of polls, prices for Romney or Gingrich winning have varied massively (+/- 30-40%!)

Trick 4: Short term bets: When you're starting out, stick to shorter time bets. If you're like me, you'll get bored with the longer term ones and will want to exit early, thus getting hit by the spread. While you're learning, stick to the shorter ones while you get used to the system and learn the ropes!