The price of "Barack Obama" shares has plummeted from approximately $7.90 to $5.90, according to the prediction platform, Intrade. This represents a 25% decline in the value of the shares in just two weeks.
Intrade describes itself as "a platform where you make predictions by buying and selling shares on the outcome of real-world events. These events are always defined on Intrade as a YES/NO proposition."
In layman's terms, the Intrade website allows clients to wager real money on the probability of events occurring or not occurring ("Yes," it will happen, or "No" it won't). Clients can buy and sell shares on the Intrade platform just as investors would buy and sell stocks in the financial markets.
One of the "Real-World Events" featured on the Intrade platform is "Barack Obama to be re-elected President in 2012." The "BUY" price for this event at the time of this post was $5.95 per share. That means that an Intrade client could buy one share for $5.95 to bet on Barack Obama winning the presidential election in November.
The Intrade website explains:
When the outcome of an event is known, the market is settled. The market will always be settled at either $0.00 or $10.00 according to the actual real-life outcome:
- YES, the market event has happened - the market will be settled at $10.00
- NO, the market event has not happened - the market will be settled at $0.00
Simply put, if an Intrade client bets on Barack Obama winning re-election by buying a share today at the current market price of $5.95, the client will earn the difference between the settlement price ($10.00) and his/her entry price (in this example, $5.95); if Barack Obama indeed wins re-election.
Of course, if Barack Obama should lose re-election in November, the client would lose his/her initial investment of $5.95, as the "event" would not have happened and the market would settle at $0.00.
See more "Right Views, Right Now" opinion and analysis.