Foresight Exchange

Foresight exchange is a play money future prediction market.  It's free to play. 

The site gives you some play money, and you buy shares in various predictions about the future.  If the predition comes true, then you make money.  If it doesn't, you lose.  It's a real market - when news comes out about a claim the prices of shares go up and down.  It's pretty exciting.

The website is at ideosphere.  There is also a summary page that lists the most popular and volatile claims.  The site's been around for about 10 years now and will probably continue.

Basic Explanation

There is a claim: "There will be an earthquake above 9.0 on the Richter scale on the west coast of the USA".  Right now the price is about 40.  If you buy it now and it comes true, then each share becomes worth 100.  But if time runs out without a big earthquake (I think it runs til 2010), then you lose your money.

There are lots of claims about all kinds of things, politics, science, and disasters mostly.

Most people spread out their investments in many different claims.  For example, I'm betting on Kerry to win in 2004, but I'm also betting that OBL will be found.  That way if OBL is found and that causes Bush to win, my loss from the Kerry shares will be balanced by my win from being right about OBL. 

Once you've played a while you can create your own claims that other people will trade in.  I've created a couple, one about Michael Jackson being found guilty of a felony, another about whether the constitution will be amended or not, one about whether or not the Japanese Yen drops below 100 to the dollar, one about whether or not the president mentions global warming in his State of the Union speech, one about how many Electoral Votes the Republican candidate for president gets in 2004, and one about Rush Limbaugh being found guilty of a felony.

You can also "sell short".  That means if you think a share is overvalued you can bet against it.  So if you think the chance of a big earthquake on the west coast is less than 40%, you can sell shares of that claim to other people.  You can do that even if you don't hold any shares in the claim!  If you do that, you have what's called "NO" shares, meaning that you are betting against the claim.  Each one would cost 60.  If time runs out without a big quake, then you make money.

So if you have say 50 shares, that means you own YES shares and hope the price goes up.  If you have -50 shares, that means you you have NO shares, and are betting against it, so you hope the price goes down.

If your share price goes up and you think the claim will eventually come true, you can either wait until the claim is judged and get paid the full 100 for being right, or you can sell before then if you want to get your money faster.  If a claim looks like it's definitely going to come true, the price will shoot up and you'll be able to unload and take your profit. 

Your own hopes and beliefs about what will actually happen don't matter as much as your judgement of how reasonable the price is. 

There's a claim OBLnov which will come true if Osama Bin Laden is captured before the 2004 presidential election.  Right now it's really cheap - it's been selling for only about 6.  I don't actually think we'll catch him - but I think the chance is better than 6%!  So I've been buying.  My plan is to buy a bunch at 6 and hope someone floats some rumors and the price shoots up.  If that happens other people will be willing to pay more than 6, and I'll be able to sell my shares for 10 or so, making 60% profit.  If it works out it'll be the classic "Buy low, sell high".

You can do the same thing in reverse - "sell high, buy low."  I did that in a claim called IraqED, which comes true if there is a free election in Iraq.  For a while it was selling at about 88 - really high!  I was reading online about how bad it really was over there, so I bought some NO shares for 12 each.  Within a few days the news started to come out and more and more people started selling, and the price dropped to about 50.  All the people who'd been paying 88 earlier were stuck.  My NO shares I'd paid 12 for were now worth 50 each, so I'd made a couple hundred percent profit!  I sold a few shares and took some of my money back, but I saved a bunch too, hoping it'd go even lower.  However, the price slowly edged back up and my profits disappeared.  I'm still holding on though.

The whole market is created by the players - two people come together who think the opposite thing will happen.  So one guy who thinks there's more than a  40% chance of a big quake, and another who thinks there's less than a 40% chance.  The first one pays 40 for a YES share and the other pays 60 for a NO share, totalling 100.  They both pay that money to the system, and two new shares are created, one YES and one NO.  The one holding the YES share hopes the price goes up.  The one holding the NO share hopes the price goes down.  When the claim is judged one of those claims will be worth 100 and the other nothing.

So no money is created or destroyed.

On each claim page there is a list of the people who want to buy, people who want to sell, and what they're willing to pay.  The "market price" is the last price two people agreed on.  That's sort of the 50/50 mark - one of them thought the price would go up (so they bought), and the other thought the price would go down (so they sold).

There's always a gap between the highest someone's willing to pay for a YES share and the lowest price someone's willing to sell for.  If news comes out that tends to raise the price, people buying will get more agressive and place higher YES bids, meeting the NO bids.  A transaction will take place, and the gap (and the market price) will move up.

Interface
The interface to fx is pretty rough.  It's hard to get into and hard to figure out how it works.  Sorry about that.  However, once you get used to is it's good.  I spend most of my time on fx looking at my account page.  When a share is moving, I check out the transactions list page often to see who's buying and selling, and how much.  If there are a bunch of newbies buying and some old hands selling, you better watch out.

It's tough at first because the idea of the market and how it works it hard enough without having to fight through the interface.

Tricks
If you go to the account page you can put in anyone's number and then click "holdings", "booked orders", and then "system-defined".  You will see their score, holdings, and orders.

If you go to the history page you can put in anyone's number and see their trading history.  This is where the real action is.  It's broken down by share, so you can see when and how much they bought and sold.  You can also see their break even price (BEP).  That is very useful - if you buy some shares at 10, and then you buy more at 15, the BEP is the lowest the price can go for you to still be in the black.

If you want to understand how selling short works, just look at the price graph and imagine it upside down.  So whenever the price goes up, the NO share price went down.  Imagine a share that's selling at 90.  The price is high, and there's not much room for it to go up anymore.  But if you flip the graph, you get the NO graph - the price is low, can't go much lower, but has a chance to go much higher.  Buying YES shares at 90 means you can only make 10 on each one - it takes a lot of capital to get a low possible gain.  But if you pay 10 for NO shares, there's a lot of chance to go up - you have a chance to make 1000%.

It's a lot easier to think of prices in terms of odds   "A to B" means "for every amount B you invest, you have a chance to make A profit".  So "2 to 1" means you invest 1 and can make 2.  Plus, you get your 1 back

Price	Odds	If you win, how much money will you have?
66	1 to 2	1.5 times as much
60	1 to 1.5	1.67x
50	1 to 1	2x
33	2 to 1	3x
25	3 to 1	4x
10	9 to 1	10x
1	99 to 1	100x

Analysis
I love FX and I've been hooked ever since I started playing, about a year ago.  It's super fun to make money and see the changes of opinion.  If you manage to get in on the ground floor of something it's great.

The problem is that there are two really hard things you need to be able to do to get into the site. 

The first is understand how markets work, all about buying and selling and selling short.  This really isn't that hard, but there's lots of new terminology, and it can be pretty hard to imagine what owning "NO" shares means at first.  Once you get it it's second nature.

The second is that the site isn't that easy to use at first.  You can see that there are claims and trades, but it's hard to figure out where it's happening.  It's hard to find out how to get to the really good stuff on the site, which to me is the user history pages.  Once you see one of those and see someone's history of buying and selling, where they made money and where they lost, you will understand. 

The help section on the site isn't that great.

There are about 200 or 300 active players.  There are two semi active mailing lists, fx-discuss for discussion, and fx-propose for new claim ideas.  A few users have created their own apps to do stuff with the data on the site, but there isn't much written about it on the web.

Players tend to be either high powered business types who've traded in real money markets, or sort of post-psychedelic transhuman enthusiasts who spend a lot of time on the internet.  I don't know of any female players.  It seems to be mostly American, but there are a few European players.  The players are not very partisan, but seem to be a little left of center.  The fact that the game is based on real outcomes and not spin tends to make them more pragmatic.

The site administration is pretty distant, but still semi-active.

Users are still creating a lot of claims, some of them really interesting.

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