Help topics
What is the idea behind the Forecast Exchange?
The idea of The Forecast Exchange is to provide a tool to better predict the future.
The main idea is that by giving everyone involved in a project of any kind a small
incentive to help guess at the outcome, "the future", the overall effect will be to
end up with a probability of some future prediction coming through that is closer than
any one single individual can make.
This is not a new idea. It is called a prediction market and is already in
use in several areas and is used in risk management in an effort to control the
future. The Iowa Electronics Market
have over the last twenty years outperformed the national election polls at guessing
how the elections would go. The American government wanted to set up a prediction
market where you could bet in which Arabic country the next coup would happen, but
it was deemed unethical. The Hollywood Stock Exchange
has succeeded in giving the film industry quite good estimates on how well certain
movies will do. Some major drug companies are using it to predict which of their
new product ideas are most likely to succeed financially by having their employees
play in an internal prediction market with some minor financial benefits if they do
well.
You can read more about this in the book
The Wisdom of Crowds by James Surowiecki, where we got the idea from.
See also
the About page.
What is the value of a stock?
There is only one time when the real value of a stock in a prediction is known, and that
is at the end of the prediction when it is decided if it has failed or not. If the
prediction fails, a stock in the prediction is worth 0. If the prediction succeeds,
a stock in the prediction is worth 100. Before this time a stock in the prediction is
worth something between 0 and 100, reflecting the probability of the prediction coming
through.
For example, a prediciton is made. In the beginning, in most well made predictions
a stock will be worth around 50, meaning that the prediction have about a 50 % chance
of succeeding. After a while, you get hold of information that seems to indicate
that it is less likely that the prediction will succeed than at the beginning.
You now think that the prediction only has about 20 % chance of succeeding. To you,
a stock is now worth 20. If someone now offers to buy this prediction for more than 20
you should sell and make a profit.
The last price anyone has paid for a stock in a prediction is also an indicator of
what that person thinks it is worth. Maybe they know something you don't know? Perhaps it
is worth as much or as little as they think it is. The point of the Forecast Exchange
is to use the last traded price as the probability of the prediction succeeding,
giving possibly valuable information about the future.
How do I earn money?
There are two ways to make money in this game. The first is to gamble on the prediction
going in. If it does, each of your stocks will end up being bought by the Forecast
Exchange for 100. This is risky, of course, because if the prediciton fails, you will
get nothing for your stocks. The other way to make money is to buy and sell predictions
before they go out of date.
For example, assume you own 10 stocks in a prediction. You manage to sell the stocks for
80 each, pocketing 800 moneys. Later you see an offer in the same prediction. Another
trader offers to sell 10 stocks in the same prediction for 50 each. You buy them, paying
500 moneys. The difference between 800 and 500 is your profit on the two trades. By
trading like this you might increase your stack of cash.
What happens when a new prediction is created?
When a new prediction is introduced to the Forecast Exchange, every trader will
get 50 stocks in this prediction. In addition, every trader receives 500 moneys
to trade with. A trader should at this time familiarise him-/herself with the
prediction and its success criteria and make up their mind on how probable the
predictions is.
From this moment on the traders can try to buy or sell these in accordance with
their belief in how probable the event is to succeed. This all traders can do until
the predictions ends.
The moneys received will go into the trader's cash and can be used to buy any prediction,
not just the new prediction. The reason behind giving moneys every time a new prediciton
is introduced is to give traders who have lost everything a new chance to trade.
What happens when a prediction is closed?
When a prediction reaches its end date or when a prediction reaches its failure
or success criteria, the prediction is closed and no more trading in this prediction
is possible. Now there are two possible scenarios.
In the first scenario the prediction has succeeded. Then all traders get 100 moneys
for each prediction they own. The trader with the most predictions at this time,
has won the honor of best trader in this prediction.
In the second scenario the prediction has failed. No traders get any money for any
predictions they own. Instead a calculation is made to see who has made the most
money by trading away their predictions before it was too late. The trader who has
made the most money (which is not necessarily the one with the fewest predictions
at this time) has won the honor of best trader in this prediction.
In either scenario, whatever a trader has made of cash he keeps. The trader can
then use the cash to trade in other predictions.
How do I buy stocks?
To buy a stock, go to the "Marketplace". In the list over active predictions, click
on the ticker of the prediction you want to buy. This will take you to a page
giving information about the prediction and a list of active offers.
The available stocks to buy are marked with a shopping cart with a small plus and
an action saying "Buy". If you like any of the offers you can accept it by clicking
the "Buy" link. If you have enough cash, the stocks will be added to your portfolio.
If you do not find any offers you like, you can create a new offer yourself. When you
click the "new offer" you will be taken to page where you can create a new buy offer.
Select the box "Make an offer to buy more stocks", choose how many stocks you want to
buy and the price you are willing to pay. Finally, choose for how long the offer will
be active and click "Make the offer". The offer is now active and other traders can
accept it if they like it.
How do I sell stocks?
To sell a stock, go to your portfolio. In the list over current stocks, click
on the ticker of the prediction you want to sell. This will take you to a page
giving information about the prediction and a list of active offers.
If other traders are interested in buying your stocks they have a shopping cart
with a small minus and an action saying "Sell". If you like any of the offers you can
accept it by clicking the "Sell" link. You will receive cash and your portfolio
will be reduced.
If you do not find any offers you like, you can create a new offer yourself. When you
click the "new offer" you will be taken to page where you can create a new sell offer.
Select the box "Make an offer to sell more stocks", choose how many stocks you want to
sell and the price you want to get for them. Finally, choose for how long the offer will
be active and click "Make the offer". The offer is now active and other traders can
accept it if they like it.
How do I cancel an offer I made?
To cancel an offer you made go to the "Marketplace". In the list over active predictions,
on the ticker of the prediction you made the offer on. This will take you to a page
giving information about the prediction and a list of active offers.
Offer that you made will be marked by a trader symbol and an action saying "Cancel your
offer to buy" or "Cancel your offer to sell". Click on the action and the offer is removed
from the market.
Overview of the icons used on this site
Icon representing a trader
Icon representing a trader's portfolio
Icon representing a trader's cash
Icon representing a feed (RSS)
Icon identifying a news item
Icon representing an announcement
Icon identifying some information
Icon representing a warning
Icon identifying a tip of some kind
Icon identifying some help related information
Icon representing a chart (link to chart)
Buy stocks (or stocks being requested)
Sell stocks (or stocks being offered)
Icon representing a prediction - the key object on the forecast exchange
Icon representing the current "state" of a prediction - in this case it's looking
good
Icon representing the current "state" of a prediction - in this case looking ok
but not perfect
Icon representing the current "state" of a prediction - and it's getting worse..
Icon representing the current "state" of a prediction - you starting to get the
picture?
Icon representing the current "state" of a prediction - in this case looking really
bad
Icon representing a prediction that succeeded
Icon representing a prediction that failed
Predictum, a medal awarded to the trader earning the most money by trading if the prediction succeeds.
Fatalum, a medal awarded to the trader earning the most money by trading if the prediction fails.
Icon representing administration tasks / items