Sunday, November 9, 2008

PM Stock Closing

We are very aware that the election result appears decisive and we are as eager as you to close the PM stocks and pay out its value.

However, it is important that they be closed once a result is beyond any doubt, and right now it is not.

There are two sources of uncertainty at this time. The first is the 220,000 special votes, which could remove as many as two seats from National in the next few days. Special votes do not tend to lift all boats equally, and have historically favoured the Green Party in particular. I believe special votes will be counted in the few few days. For an explanation of how National could lose up to two seats from special votes, see here.

The second source of uncertainty is coalition negotiations. It is possible a coalition partner will make outrageous demands that jeopardise coalition building.

It is likely these uncertainties will be resolved by the end of next week - although nothing is certain in MMP. Until then we will not close the PM stocks. Obviously, there is not enough uncertainty to prevent Helen Clark and Michael Cullen from stepping down - but the worst nightmare for a prediction market is to pay out on an event that does not in fact go on to happen.

If you wish close out your position ahead of the stock closing, you may do so at any time on the open market.

Thank you for your patience.

16 comments:

Anonymous said...

can we close mp.peters? i presume that is beyond doubt?

Greg said...

I've been searching online for an answer to this question, but haven't found one. Excuse me posting it here.

Why do some traders (I suspect it is the work of one trader) place evenly spaced orders above and below an asking price, seemingly without regard to whether or not those orders are likely?

For example, Maj.Nat (a favourite of mine, which will definitely pay out at zero) has orders of 100 shares at intervals of 0.0006 or 0.0007 on the 'buy ledger' and orders of 100 shares at intervals of around 0.0008 to 0.0011 on the 'sell ledger'.

Is this just to make a very few cents on price fluctuations? Seems like a lot of effort. Is there a quick way of placing so many evenly spaced orders? Why bother putting orders on the buy ledger when this stock could surely be closed at any minute?

Words of welcome gratefully received.

JC said...

how about closing the electorate stocks which are more cut and dry? such as rimutaka?

Keaton 'Method' Johnstone said...

The evenly spaced orders on both sides of the price line, working at common sizes, is the automated market maker. This Market Make isn't that bright, and more or less trades both sides of the fence. This provides liquidity to the market.
If we launched a stock without a market maker, there would be no stocks in the wild, and either you would be required to buy bundles to gain holdings, or someone would be required to place a short sell. This would then mean the active traders on the market rely essentially on each other throughout the market. Which could be considered good, however in many situations, most traders would be unable to do the action they would like. Such as arriving at the site, seeing something is over priced, and having a desire to purchase.. If there are no bundles attached to this stock, and no one is sitting there wanting to short sell, the trader would be unable to trade, therefore not allowing his prediction to be reflected within the cost of the stock.

The automated market maker works very similar to a traditional market maker in the real stock exchanges, however ours does not turn a profit, and it does not have humans steering some of the gears. Once the market maker is setup on a market, it is more or less completely on it's own to provide liquidity on the market.
It's complementary to itself, which means it will nullify it's own impact on the market. It is completely unbiased, and provides trades to anyone who desires the trade. Assuming only on one thing, it has the equity to do so. We assign a certain cash amount to the market maker, and the market maker will provide liquidity until it no longer has the funds to do so. Often times this only happens when a market moves drastically to the either end of the prediction spectrum, from where it started. During the move often hundreds of orders are placed and consumed, which means the market maker may go through all of it's equity.

The spacing is currently due to a log curve, meaning as it deviates from the fulcrum (the starting point of the market), the further you get, the slower the price will move. This is pretty much the only intelligence the market maker has. This is due to the difference in incentives as you move the prediction. As you near 100%, the gain of 1 cent for a purchase of 99 cents, is little incentive to trade. This holds true for the traders, which means the market maker reflects this, and will place less spaced orders, in an effort to encourage yet more liquidity. Traders will trade on a difference of only a fraction of a cent at the higher ends, and not at 3 cent intervals, which may occur when prices have lots of incentive to trade (prices of 30 cents through to 70 cents).

As for the automated trading related questions. Currently iPredict does not currently support automated trading in any respect from any of our traders. There is currently plans in the works to facilitate trading for our traders, however currently the only way to place an order on the book is through one of the 3 trade interfaces.

Greg said...

Great answer - thanks for your time!

HolyBastard said...

Rodney Hide has already publicly offer his party's support to form a National Government, so shouldn't this stock be closed!? I really need the moneies for trading other stocks. Also if you want ideas for new stocks from us, shouldn't you offer some prizes, since we are helping you!? Thanks.

Keaton 'Method' Johnstone said...

The market maker more or less "offers prizes" on a continual basis. The market maker rewards those with correct information. As far as I know, almost all markets have the market makers use up most of their funds.. so if the MM is going in with cash, comes out with less, that cash is now spread amongst the traders who have purchased in the right direction.

You could argue this is a more fluid and integrated reward system. If you suggest a stock we roll with, potentially you could have the edge, since you were one of the first people to investigate the issue, which means when it launches, you could know more then most traders, therefore giving yourself an edge and gaining more of that initial seed money.

Course this is all situational, and unpredictable.

I'm pretty sure we're going to be looking at "suggest a stock" features that are more tightly integrated with the website. Potentially rewarding those who suggest stocks we roll with.
Nothing is set in stone as far as I know regarding lots of this, but that also swings both ways... perhaps none of this will change over the next while.

However we are continuing to always add features and improve the response times of the website, so even if what I described above never sees the light of day, I am confident something will make it out.

My 2 cents (or ~8 PM.LABOUR stock) :)

HolyBastard said...

Why is the Labour Party leader's stock still open and the deputy leader stock closed? Thanks.

Hamish said...

Probably because the contracts are different. DL was whoever took over from Michael Cullen, whereas leader is from 31st Decemebt.

HolyBastard said...

I don't think the "12.00 am" on 31 December 2008 was not there. Since he is already going to take over, what the point of waiting until then!? Thanks.

HolyBastard said...

Please disregard my last post. I meant to say:
I don't think the "12.00 am" on 31 December 2008 was there. Since he has already been elected the party leader (see here http://www.labour.org.nz/index.html), what's the point of waiting until then!? Thanks

Dibbo said...

i was thinking the same...but given how the contract is worded it is conceivable that somebody could trade this on the basis that the person elected leader (ie Goff) is not in fact still the leader on 31 Dec. I don't think that was the intention of the contract..suspect that this was launched on the assumption that Clark would not resign immediately. But still...

Matt Burgess said...

HB, the DL stock closed already because it asked who would replace Cullen as deputy leader of Labour. The leader stock asks who will be leading on December 31. This is not ideal - in future we will draft stock definitions that close when the answer becomes known. We can't close the stock on leader until Dec 31 because we can't be certain it will in fact be Phil Goff leading on that day. We can be certain King is Cullen's replacement so that stock can close.

You can of course free up cash in your Goff position by selling to someone willing to wait, and it shouldn't cost you more than 1-2 cents.

It is important we respect contract definitions as drafted, so we can't close early, but more important to improve our drafting to avoid this sort of thing in future.

HolyBastard said...

O.K. Thanks. I think I got what you are saying. It now makes sense.

HolyBastard said...

Just out of curiosity, is it likely that this research project to be a "going concern" in the foreseeable future, or will it be closed down after your research is complete? Thanks.

Keaton 'Method' Johnstone said...

AFAIK there are no plans at all, in any shape or form, to stop "the research" as you like to put it.

If you can see a stock to trade on a year from now, suggest it, and there is a chance you'll see it. That should give a good indicator to length of time we should be around :)

Right now there is a loss on each stock placed (via seeding from the market maker). We are working on some cleaner solutions to this, and should cut our loses more, enabling more stock to make it's way to the crowd.