Who Is …
The NewsFutures prediction market is “like a stock market of news events.” It is operated by NewsFutures (NF), a relatively young (2000) but fast moving company, and their prediction market site doubles as the corporate site. The primary business of NF is selling software and services to corporate customers wanting to take advantage of the “wisdom of the crowds.”
The Good
The site is fairly simple and straightforward, and does a good job of explaining the basic concept of prediction markets.
The Bad
Overly complicated presentation of binary contracts make things more complicated than they need to be, and no order review page before an order gets submitted.
The Tags
Market Purpose: entertainment, event prediction
Market Control: NewsFutures
Targeted End User: general trader, prediction market aficionado
Currency: play money (“eXchange dollars” – X$)
Underlying Event Types: events (news, money, sports, entertainment)
Contract Types: binary
Trading Mechanism: book
Size of Market: ~17,500 traders
Number of Contracts: ~110 contracts (that is “opposite pair” contracts)
The Metrics
Communication of ideas
NF, from the opening words on their site (see above), actually does a pretty good job of describing what a prediction market is. While prediction markets are certainly not stock markets, the simile does the job: here you trade ideas and events like stocks.
For those who don’t get it there is a user guide, a set of FAQs, and market rules, all of which are easily accessible and are written in a straightforward manner. You definitely get the sense that NF has explained these concepts before to people who are not familiar with them.
However, I do wonder if people get confused by the concept of “opposite outcome.” As someone familiar with stock trading, my immediate reaction is: “Why not just allow short selling?” There may be technical reasons for this, but shorting to me makes more sense then investing in an “opposite outcome.”
As a concept it also complicates the trading interface. For example, for each event there are really only two positions (these are binary contracts, after all): I can either bet that it will happen with a certain probability, or I can bet that it won’t happen with a certain probability. But instead of two options, we’re presented with four – buying and selling either outcome.
I understand that the user is only allowed to engage in those trading activities available to him (buying if he holds no contracts, buying and selling if they do hold contracts), but there are four distinct areas for buying and selling spread out over two pages for one event. To me it seems like needless complication. If you believe it will happen you buy; if not you sell.
The visual language of the trading screen is also confusing. If I believe that something won’t happen, the color red is my cue. The red arrow is associated with the red box. But the red sell box doesn’t actually help me, instead I have to follow a link to invest (read buy) the opposite outcome. On this page everything is reversed. Here I need to buy the event not happening, which is a more complicated logical statement then just selling the event. A simpler, readily available mental model (shorting) would have worked just fine.
It might be argued that the concept of “opposite outcome” better supports sporting event predictions where there are two opponents, but I would argue that again there is needless complication. For a sporting event on NF there are four outcomes graphically presented (on two different, but linked pages):
- Opponent A winning
- Opponent A losing
- Opponent B winning
- Opponent B losing
But the truth is much simpler:
- Opponent A wins
- or -
- Opponent B wins
Why not present this on one page?
Functionality
NF has the basic functionality down. Users can easily browse markets and look for contracts they’re interested in. They can see price history via charts, see the price history over different periods of time, see market liquidity, the last trade, and a list of traders willing to sell and buy. The user can also access a rather neat graphical order book (image to the right), to see where the bulk of the orders are sitting along the price range.
Hot markets are also called out, and community tools are also available to users, such as message boards and trading/strategy clubs. However, it does not appear that, despite the number of traders registered on the site, these boards and clubs are very active. In fact, I could not find the existence of even one club, although maybe this is a feature only available to users who pay the $40 for premium service and extra functionality. The message boards, while having some activity, tend to be limited to traders taunting each other.
Each market page also includes a list of recent, related posts on the boards and informational links (although these don’t seem to be too robust, and it’s hard to know the quality of the information they are linking to)
A neat piece of functionality on the market page is the ability to click on a sell order price and having a trade automatically entered for you, the number of contracts appropriately calculated based on the money you have available.
Other functionality includes:
- a French and Hungarian site (why Hungary???? Or perhaps I’m just being US centric.)
- a Trader Map that places traders on a map of the world (… I’m not sure I get it)
- My Mailbox
- and for $40 you can becomes a VIT (Very Important Traders) which gets you additional functionality, like a personalized home page
- a traders boutique where traders can bid on prizes such as a limited selection of DVDs (e.g. Pride and Prejudice)
Interaction
In general the interaction and usability of this site is simple and straightforward. Markets and help content are easy to find. However, there are some issues.
The main problem I have with this site is that users don’t have the opportunity to review a trade before placing it. Most trading sites allow the user to review a trade before placing it. This is good manners, not only for the trader in case they make a mistake, but also for other traders, who don’t have to worry about errant trades messing up the order book.
While this is play money, and perhaps the only thing at risk is a trader’s reputation, allowing the trader to review a trade and make changes in the case of a mistake, or a trader changing their mind, is a best practice for trading sites.
Otherwise the contract pages tended to have the types of information important to a trader, including their available cash and the contracts they may hold in this market, but not in the “opposite outcome,” which seems like an omission.
The charts, while showing various time periods, are really just too small to be useful. One would expect that they could be enlarged, especially when looking at longer time periods, but they can not.
Also too small, and perhaps easily overlooked by traders, is information about total contracts held among all traders and the price of the last trade.
Finally, the “I Need Help!” link on the market trade is a nice touch. NF definitely takes every opportunity to explain how their site works.
Clarity of contracts
In general the contracts seem fairly clear and straightforward, although I would wish for even more explicitness in some of these. For example: “Each NKBOMB6Y contract that you buy will be worth x$100 if North Korea conducts a nuclear test in 2006. Otherwise, it will be worth nothing.” I don’t want to quibble, but what is meant by “nuclear test”? Maybe it’s me, but this contract seems a bit too vague for comfort.
I can’t help but contrast this to FX, where traders often review each others claims and, if anything, there is too much detail. But in the case of events, better more detail than less.
That said, I do admire the way the contract is simply stated. Perhaps the simple statement could be kept, but then links to more information could be provided for the nit pickers, like me.
Also, this is a strange market: “Will Japan’s Princess Kiko have a boy or a girl?” And why is the boy contract trading at 56 (as of 5PM EST May 3rd, 2006)? Seems like an arbitrage opportunity.
Account basics
The account page is, like much in this site, fairly simple, giving you the basic information you need, such as holdings, available cash, net worth, and ranking among all traders. Registration is easy and accessing trading history is also easy.
Market fairness
While I have not done a sophisticated analysis of how fair the market is, NF does make it clear that they are the arbiter of justice here, and can revoke trading rights, or other punishment as it sees fit, depending on the crime or malfeasance.
Trader incentivization
Winners can use their hard earned X$’s to bid on a fairly limited set of prizes, including DVDs and gift certificates. Perhaps the most intriguing prize is 1 month of updated features for your eXchange account. While I think I understand the rationale for making people bid for the privilege of this extra functionality, why don’t they just provide it free to everyone and create good will, which could have a positive impact on how people perceive their software, and perhaps increase inquiries about their services. The $40 doesn’t seem like it gets you all that much, and I can’t imagine they make much revenue from it.
Also, top traders are listed and past winners of auctions are listed.
As always, thanks for listening.
~alex
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There’s a pretty big difference between selling short and buying the opposite position. To put it in stark terms, when you sell short, you increase your cash, and take on a variable liability. When you buy the opposite, both sides of the market are spending money and gaining a conditional (but non-negative) asset.
From the point of view of the market operator the difference is whether they are exposed to the risk in the contract. If they sell opposition positions to the two sides, then the operator collects a dollar, and has $1 of liability.
If they allow traders to sell short, then they have to monitor traders’ portfolios and ensure that they maintain enough cash to cover all their short positions. If you reserve the entire potential liability, the traders are in the same position as if they had bought the opposite position, except the nomenclature leads them to expect different behavior. If you reserve only a portion, (see TradeSports) then traders have trouble predicting how much spendable mondy they’ll have in their account after a trade or day-to-day, and the operator is taking on some outcome-related risk.
There’s a longer and more detailed description at The Now Economy blog.
Thanks for your comments. This is important, and you’re correct to point out that that shorting is most definitely a different animal than buying the opposite contact, and that these differences apply not just to the market operator, but also the trader.
My concern, though, is less about the money – these are play money markets, after all (but serious nontheless) – than the presentation of the choices you have to bet on an event. I believe (and I could be wrong), that it makes more sense to someone who may not be familiar with prediction markets and binary contracts to be presented with two clear choices: either this will happen, or it won’t. And that that choice should be presented on the same page. At the end of the day we’re talking about one event which will or will not happen, not two contracts (which, of course, mirror each other).
But your point is a good one, and perhaps shorting is not the best mental model to use, since this concept has a lot of implications that a particular market may not be ready to deal with. I do look at HX, though, and think that they have incorporated the concept of shorting in a more elegant way … but I hesitate to bring this up since NewsFutures uses binary contracts which are fundementally different than the linear contracts of HX.
~alex
Yes. I meant to agree with you that offering an apparent 4 choices when there are only two possible outcomes is overkill, and likely to make some people feel that the whole thing is too complicated. HSX does make it look simple, but I’ve never been able to figure out what’s behind their pricing model. For those who just want to trade, it may be a good compromise.
That’s a great question about HSX. They probably don’t readily share that type of information, either.
Until reading your page I didn’t realize there were so many predictive market sites. I have used Newsfutures for a few years now and enjoy it. I can’t say I agree completely with your assessment but you do make some good points.
Regarding clubs, there are no public clubs only private clubs. Therefore, you start a club, invite some other traders who you may know, or frequent the same markets you do and voila, a club is born.