Not to brag, but I’m the greatest sports bettor of all time.<\/p>\n\n\n\n
No, seriously. My win percentage is 100% (once you factor out a handful of human errors).<\/p>\n\n\n\n
My secret? A system. A foolproof system (once you factor out a handful of human errors).<\/p>\n\n\n\n
I only bet on sure things. When a batter is up in baseball, I stage a series of trade tickets in Qwidgets representing the potential outcomes of that at-bat. Then, after observing what happens, I place the trades for those outcomes. It’s foolproof (once you factor out a handful of human errors).<\/p>\n\n\n\n
Quick disclosure: I’m not really a gambler. I did this at first to QA the mobile realtime trading experience of Qwidgets and found it made baseball games more engaging. While it’s neat to try to beat the automated systems to market, I could definitely see how people susceptible to gambling addiction could get into trouble very quickly. I don’t have an official stance on whether gambling should be allowed via prediction markets. I think it’s a net negative for society, but I also believe people should have certain liberties to make decisions for themselves. I’m not participating in that debate; I just want to build stuff.<\/p>\n\n\n\n
Anyway, sportsbooks have rules against what I was doing. They call it \u201ccourtsiding\u201d and it’s grounds to have your position voided. And, since it’s their money at risk as your counterparty, they’ll typically suspend betting in the periods immediately around these critical moments to keep users from exploiting latency.<\/p>\n\n\n\n
Peer trading exchanges (like prediction markets) don’t work this way. They allow people to post bids and asks for contracts whenever they want, so it’s very easy to pick off offers someone forgot to withdraw. Or, in the case of certain incentive models, market makers will leave a single contract dangling at a competitive price to keep the market looking liquid for as long as possible.<\/p>\n\n\n\n
And while event contracts aren’t really a thing yet in public financial markets (at least in the US), we do see a lot of event-centric activity, especially around earnings announcements. This drives a lot of racing to market as algos parse published announcements, generate updated views, and then aggressively trade outside market hours in the hopes of getting the exposure they now want at the best price possible.<\/p>\n\n\n\n
This sort of event risk (effectively courtsiding) is an implicit risk in financial markets. There are reasonable regulatory protections against insider trading around these events, but even those are a little ambiguous. A case involving Texas Gulf Sulphur, for example, established an \u201cabsorption period\u201d doctrine where parties with prior knowledge aren’t supposed to trade the instant a release hits in order to give time for outside parties to process the implications of the event. Modern instruments like 10b5-1 plans extend that principle\u2014insiders pre-schedule trades in advance so they can’t time around news they’re not supposed to know yet. But in the modern world of automation and near-instant reaction, what does any of that really mean?<\/p>\n\n\n\n
Practically speaking, ordinary investors are expected to be aware of and responsible for how they handle knowable market-moving events. In other words, they participate in a marketplace understanding that they’re not going to be able to compete in courtsiding event outcomes. Their investment vector necessarily has to be different from those who use superior automation to their advantage. Holding equity positions through events is an implicit acceptance of that risk.<\/p>\n\n\n\n
Unfortunately, event contracts introduce two layers of increased risk not as prevalent in equities. First, it’s a lot harder to distinguish between insider trading and courtsiding. The legal framework for insider trading is built on duty plus non-public information. In event contracts, \u201cinformation\u201d is often just observation of a public event, and the speed of observation can produce profits that look like insider trading even when nobody breached anything. Second, courtsiding moments in event contracts are often terminal and result in all-or-nothing outcomes for holders that can happen at any time prior to expiration. The contract often resolves binary on the next pitch, with no \u201creassess next quarter\u201d, no partial position, and currently no options market to hedge through. This substantially alters the nature of how investors approach hedging and monitoring.<\/p>\n\n\n\n
While the event contracts themselves offer an immediate opportunity to hedge specific outcomes today, they’ll inevitably evolve into their own dedicated surface area. This will spur the need for specialized derivatives to hedge the event contracts themselves, such as the emerging class of ETFs based on event contracts (and the options to surely follow). And that hedging will be critical for everyone because legal courtsiding is effectively identical to illegal insider trading when binaries peg to 0 or 1 in an instant.<\/p>\n","protected":false},"excerpt":{"rendered":"
Not to brag, but I’m the greatest sports bettor of all time. No, seriously. My win percentage is 100% (once you factor out a handful of human errors). My secret? A system. A foolproof system (once you factor out a handful of human errors). I only bet on sure things. When a batter is up … Continue reading “Batting 1.000 on a Baseball Prediction Market: A Field Report on Insider Trading”<\/span><\/a><\/p>\n","protected":false},"author":1,"featured_media":597,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":[],"categories":[8],"tags":[],"_links":{"self":[{"href":"https:\/\/quantcha.com\/news\/wp-json\/wp\/v2\/posts\/596"}],"collection":[{"href":"https:\/\/quantcha.com\/news\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/quantcha.com\/news\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/quantcha.com\/news\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/quantcha.com\/news\/wp-json\/wp\/v2\/comments?post=596"}],"version-history":[{"count":1,"href":"https:\/\/quantcha.com\/news\/wp-json\/wp\/v2\/posts\/596\/revisions"}],"predecessor-version":[{"id":598,"href":"https:\/\/quantcha.com\/news\/wp-json\/wp\/v2\/posts\/596\/revisions\/598"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/quantcha.com\/news\/wp-json\/wp\/v2\/media\/597"}],"wp:attachment":[{"href":"https:\/\/quantcha.com\/news\/wp-json\/wp\/v2\/media?parent=596"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/quantcha.com\/news\/wp-json\/wp\/v2\/categories?post=596"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/quantcha.com\/news\/wp-json\/wp\/v2\/tags?post=596"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}