Day-Traders Bet Real Bucks on Presidential Race
By Ross Finley
When it comes to U.S. Presidential elections, for some people, it's all about the money.
Several thousand political junkies have gathered online this year to risk money on the outcome of yesterday's U.S. Presidential election in a real futures market run by the Tippie College of Business at the University of Iowa.
Students, along with a range of working professionals from different walks of life are all taking part in the Iowa Electronic Markets this election season, putting down up to $500 to get in.
And like real futures traders trying to make a buck and not get stuck with a loser, they often buy and sell the candidates - Republican George W. Bush and his Democrat rival, Vice-President Al Gore -- based on the latest headlines and polls, and not on their own political convictions.
"I initially bought George Bush just because I liked him," says John Martin, a stockbroker in Los Angeles who has played the presidential futures market every year since its inception in 1988. "But when Al Gore rallied to 70 cents I sold all my Bush and bought Gore," he continues.
"Two weeks ago when the tide started changing I sold all my Gore and got my Bush back again," Martin says. He confessed that he has been "totally whipsawed" by the market, and hopes a Bush victory will help him break even.
Roughly 6,500 investors have injected over $200,000 into the political markets this year, which also include markets on congressional races and the New York Senate race.
In the winner-take-all presidential market, contracts on each candidate pay $1 to the bearer of a correct bet on the outcome, while losers get nothing. It has correctly predicted the outcome of the last three presidential elections.
Ian Hoffman, a trial attorney in Cleveland Heights, Ohio, first got hooked on the Iowa markets when he was a law student at the University of Iowa in 1992. Now he says he logs onto http://www.biz.uiowa.edu/iem/index.html several times a day to check his positions.
Hoffman said he recently dumped 200 Gore contracts at about 30 cents a share, despite his own political convictions.
"It hurt a lot," Hoffman comments. "But in a way I can't lose. If Gore wins, then myself and the country are better off. If Bush wins, well, at least I made a little bit of money."
Statistics also show a direct correlation between trading volume and news -- exactly like a real futures market.
On Oct. 3, the day of the first debate, for example, 1,800 Gore contracts and 4,400 Bushes changed hands. That compares to a regular day when sometimes only a few hundred contracts are traded.
Echoing words from investment advisors who coach market players on handling risk, Kevin O'Meara, an economist in Portland, Ore., who calls himself "a political day trader," says betting with your heart will land you in the hole.
"If you slavishly bet your political beliefs you'll get wiped out." And that, say the market's administrators, means that while Bush is ahead in both the voter share and winner-take-all markets -- as well as recent Reuters/MSNBC polls -- the outcome of Tuesday's election is still a toss-up.
"This is the first presidential election we've run on where there was this much uncertainty this late in the election," said Thomas Rietz, professor of finance at Iowa.
"It's just too close a race to call."