Some students are cashing in on the race for president
College students have been known to be among the most active groups involved in presidential campaigns, and many follow the primaries closely. But some students have a larger incentive to follow these political events and get involved — they’ve got money riding on the outcome.
Intrade is an online prediction market where users buy and sell shares based on the outcome of a particular event, such as a specific person getting the Republican nomination for president or a certain movie winning an Academy Award.
The events on the market have a yes or no outcome, and users buy shares if they think the event will happen, and sell them if they don’t believe the event will happen.
Each share is worth somewhere between $0 and $10, and values changes depending on how much the market of users wants to buy and sell. Just like the stock market, users are free to buy and sell shares to try to make a profit until the event ends.
Jackson Newhouse, a senior mathematics major at Harvey Mudd College, has known about Intrade since the 2008 primaries and started trading last May. Since then, Intrade has become a permanent tab on his web browser. “I do it just as an intellectual exercise — can I do better than the market and can I make money?” Newhouse said.
Newhouse has made good investments so far. Starting with $95, he has gotten up to as much as $180 and currently has $120.
He recently made a profit on a prediction that Jon Huntsman would finish second in the New Hampshire primary. Newhouse bought shares on December 15, when each share was at 16% (meaning $1.60 per share). He watched its value plummet to 6% and thought about selling them, but the day before the New Hampshire primary, the value of his shares suddenly skyrocketed to 40%, and he sold them then, making a large profit.
Newhouse mainly trades shares in political events because of his interest in politics and the liquidity of the markets. “I don't want to trade on markets that aren't very liquid. I want to be able to buy and sell at close to whatever I bought at, and the political markets are the vast majority of that,” Newhouse said.
Newhouse says that he hasn’t become more politically active now that he uses Intrade, but “I definitely follow it closely because I have money on it.”
Intrade has been used by many news organizations as a way to predict the outcomes of the primaries. Intrade’s shares for Mitt Romney winning the Iowa primaries were worth around 50% at closing, Rick Santorum’s were at almost 30%, and Ron Paul’s were just under Santorum’s.
Predictions for the New Hampshire primary were more decisive. Near the end, Romney’s shares were worth $9.99, while others were nearly worthless.
As a mathematics major, one of the aspects that Newhouse finds appealing is the mathematics behind the predictions, especially looking at whether certain markets are correlated.
He once made $30 by looking at the relative values in the markets “Rick Perry to announce he will run for president” and “Rick Perry to be Republican party nominee,” finding a relationship between the values and buying and selling a certain amount of shares in each so that he would either break even if Perry didn't run or get a profit if Perry did run.
While Newhouse is almost always active on Intrade, he doesn’t recommend that students use it as a regular source of income. “It involves a lot of risk, and the events you're betting on — prices can fluctuate widely. If you’re betting on an announcement of whether someone's going to run for president or not, it's very high risk.”
He also added, “I'm not doing it to make money. I have other sources of income. I have enough in to kind of have fun with it and be able to see how I do.”
Joanna Kao is a Spring 2012 Paste BN Collegiate Correspondent. Learn more about her here.
This story originally appeared on the Paste BN College blog, a news source produced for college students by student journalists. The blog closed in September of 2017.