How an (entirely legal) online gambling site is impacting the race
In recent weeks, Marco Rubio has had much to celebrate. Pundits have lauded his performances in the past two debates, he’s risen in the polls and it seems as though the party establishment has begun to coalesce behind the young Florida senator.
Even still, Rubio trails by more than 10 points in most polls to outside candidates Donald Trump and Ben Carson.
Yet, even in spite of these trends, online betting markets, such as PredictIt, list Rubio as the favorite to win the Republican nomination. Claiming an 89 percent accuracy rate, PredictIt, and other sites like it, have taken the 2016 campaign by storm, as more people pay attention to their favorite candidate’s stock.
PredictIt operate on a basic premise. Traders, limited to American citizens registered to vote, can browse the different available markets, which encompass a wide variety of issues. All markets operate on a binary system, meaning that each trader can buy either yes or no trades to questions such as, Will Hillary Clinton be the Democratic nominee? As more traders weigh in, the stock’s price fluctuates, and so traders can buy or sell accordingly. After the event occurs, whichever side is right will receive a dollar for every share purchased.
Markets are not limited exclusively to questions about presidential candidates (although they do tend to be the most popular). Instead, traders may choose to evaluate questions like whether Greece will leave the EU in 2015, or if the ICC will indict an Israeli official this year.
PredictIt is far from the first type of political gambling to arise. Indeed, political betting has a long and turbulent history in the United States. Wall Street traders have been betting on the outcome of political campaigns since the 1916 campaign between incumbent president Woodrow Wilson and challenger Charles Hughes.
Regulators subsequently cracked down on such behavior. For example, during the 2012 election, an Irish-based trading company known as Intrade was criticized for allowing an anonymous donor to inappropriately misrepresent traders’ faith in Mitt Romney’s chance of election. This anonymous donor, nicknamed the “Romney Whale,” bet $4 million that Romney would win the 2012 election. The Commodity Futures Trading Commission (CFTC) determined that such behavior dictated an intent to control the market, and forbid Intrade from operating within the United States.
To avoid Intrade’s fate, PredictIt has complied with the CFTC’s guidelines. As such, each trader may only buy $850 worth of shares for any individual market, and only 5,000 traders are allowed to operate within this market at a time. This limits the extent to which any one person can influence a market’s value, and for this reason the CFTC has decided to permit PredictIt to operate legally within the United States.
PredictIt currently has about 40,000 traders on its site who have made about 9 million trades since the site’s inception in October 2014.
While many use the PredictIt site for fun, or to make a quick profit, many have begun to turn to the site as a metric for how the different candidates are faring in the election. Moreover, some candidates, like Jeb Bush, have explicitly pointed to their favorable rating on PredictIt in order to mitigate concerns over low polling numbers.
Even still, many pundits argue that these markets are no replacement for traditional polling efforts, for they capture the opinions of a population that tends to be younger, wealthier and more male than the general electorate.
Perhaps more importantly, some have criticized PredictIt for its susceptibility to insider trading PredictIt offers no protection to insider trading, although its employees are not allowed to trade. However, the site’s defenders argue that because traders have a strict limit on the number of shares they are allowed to buy, the degree to which insider trading could affect a market is limited.
Stumbling upon PredictIt myself a few weeks ago, I’ve found the prospect of political betting to be a fun way to become more engaged with the political process, without much risk. It only takes $10 to register, and you can start trading that same day. I encourage other young voters to consider taking this opportunity to help shape the future of political betting, further engage in the political process and maybe, if you’re lucky, make a quick buck in the process.