Prediction market
A market where people trade contracts on the outcome of future events, such as an election result, an interest rate decision or a sports game. In the United States regulated prediction markets are overseen by the Commodity Futures Trading Commission (CFTC).
In practice
The products traded on a prediction market are usually called event contracts. A typical contract asks a yes-or-no question and pays a fixed amount, usually $1, to those who held the correct side when the event is settled. The CFTC says prediction markets have been regulated by it since 2004.
How long have prediction markets existed in the United States?
The CFTC's timeline starts in 1988, when the University of Iowa created the Iowa Presidential Stock Market, now the Iowa Electronic Market, as an academic programme. In 2004 the CFTC approved HedgeStreet, later renamed Nadex, as the first designated contract market to offer binary options. In 2010 the Dodd-Frank Act gave the CFTC authority to prohibit trading in certain types of event contracts.
Source: US Commodity Futures Trading Commission — Prediction Markets
What sets a regulated prediction market apart?
According to the CFTC, a regulated exchange does not take a side of the trade: it provides the platform and does not compete against its customers. Exchanges must pass an application process, are examined periodically and must monitor their own trading for manipulation and insider trading. The CFTC states that prediction markets are federally regulated and, under federal law, can operate in all 50 states.
Source: US Commodity Futures Trading Commission — Prediction Markets
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