InTrade shows 63% Chance of US Recession in 2008

Feb 22, 2008: 12:52 AM CST

Popular betting site InTrade.com is a place where traders from across the globe can bet real money on the likelihood of a variety of events occurring.

Currently, the site is showing a 63% chance of the US being declared as in an official recession at some time in 2008, which is actually down from the peak at a 75% chance in early January.

In fact, prices (percentages) have flat-lined throughout February so far and actually have been slightly declining.

Let’s look at the price (percentage) chart:

What happens is that traders can buy on the bid or sell on the ask (offer) just like a real stock, only the system works more like a one-sided options trade.

Say for example you believed the US would head into a recession and you bought a contract expressing your belief at about $65. If the US did go into a recession in 2008, then you would be given $100 at the close (or expiration) of the contract and would lose your initial payment of $65, meaning you would receive a $35 profit.

The way we are able to derive percentages out of the structure comes from the inherent price that traders pay in aggregate through their buying and selling pressure.

While it’s not an exact science, sites such as this and that of Rasmussen Markets have often mirrored or exceeded the performance of standard random sampling polls and surveys conducted through professional organizations regarding which candidate would win certain primaries in this US Election Cycle.

Although these numbers change each day as traders factor in new and developing information, these markets react to news much faster than on the ground polls do.

These market prediction sites can’t guarantee outcomes of course, but they serve similar roles as the bookies in Las Vegas in terms of setting the line for probabilities and payouts. After all, what speaks louder than people putting actual money on the line for their ideals?

For a little bit of late night trivia, according to InTrade, Barack Obama currently (as of 1:00am EST) has a 80.3% chance of becoming the Democratic Party’s nominee in the fall to Hillary Clinton’s 19% chance. John McCain has a 94% chance of becoming the Republican nominee. Mike Huckabee? 1.2% chance.

When the markets are forced to chose between two options, the prices often converge to provide an actual prediction (which adds up to 100%) due to the inherent nature of the trading the contracts.

If you’re also a political junkie like I can be, InTrade and Rasmussen Markets can provide some interesting data that helps combine your love for the markets, speculation, and politics. Enjoy!

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2 Responses to “InTrade shows 63% Chance of US Recession in 2008”

  1. Barack Obama » InTrade shows 63% Chance of US Recession in 2008 Says:

    […] Afraid to Trade.com Blog – Overcoming Fears wrote an interesting post today on InTrade shows 63% Chance of US Recession in 2008Here’s a quick excerpt Popular betting site InTrade.com is a place where traders from across the globe can bet real money on the likelihood of a variety of events occurring. Currently, the site is showing a 63% chance of the US being declared as in an official recession at some time in 2008, which is actually down from the peak at a 75% chance in early January. In fact, prices (percentages) have flat-lined throughout February so far and actually have been slightly declining. Let’s look at the price (percentage) […]

  2. Stock Market » InTrade shows 63% Chance of US Recession in 2008 Says:

    […] Afraid to Trade.com Blog – Overcoming Fears wrote an interesting post today on InTrade shows 63% Chance of US Recession in 2008Here’s a quick excerpt Popular betting site InTrade.com is a place where traders from across the globe can bet real money on the likelihood of a variety of events occurring. Currently, the site is showing a 63% chance of the US being declared as in an official recession at some time in 2008, which is actually down from the peak at a 75% chance in early January. In fact, prices (percentages) have flat-lined throughout February so far and actually have been slightly declining. Let’s look at the price (percentage) […]