Yes, you read that title right. One of the recent trends that has been gaining a lot of traction is a new form of investment: “Event Trading”. In short, you can bet on many specific events, either as a speculation or perhaps to hedge an investment of yours in some way. Over the past few years, many sports betting companies offered a few such possibilities, but the market has been growing and is now at the centre of much discussion.
Of course, there are many legal aspects to this. Internet gambling is illegal in many places and on a grey lines in others while it is perfectly legal in many smaller states as well as in most European countries. Great-Britain is a leader in the industry.It is still unclear if this should be regarded as gambling or as investing and in terms of legislation, it makes a big difference. The highly regarded Financial Analysts Journal (FAJ) has actually said that the CFTC (Commodity Futures Trading Commission) has started to look into the question.
This certainly offers interesting possibilities. For example, say you had a feeling that John McCain was going to pull off a big upset last Tuesday? Well, you could have made 14 times your money betting on it. You can even bet on who will be the Republican nominee for the 2012 elections (feel like Sarah Palin has a shot, you can already place a bet on her). But there are also some other bets such as a possible attack by China on Taiwan. If you have some important investments in Taiwan (such as possibly a position on EWT) then an event trade might be a very good hedge for your investment. One of the leading websites to currently offer such trading is Intrade, a company based in Ireland. There is even a growing number of publications dedicated to trading events and how to build models around it.
There is in fact an almost unlimited amount of trades that could be offered as the business evolves but even right now, you can bet on arts, entertainment (box office returns, tv ratings, etc), weather, financial events, legal, politics, scientific discoveries, technologies and even on space travel.
Another possibile hedge would be to have your position on Google or Yahoo for example and you can then take a position on their respective market share in searches, which could be a hedge but it might also be possible to establish new trading strategies based on event trading, certainly something that will evolve as time goes by.If you liked this post, you can consider subscribing to our free newsletters here