Understanding Price Movements on PredictIt
What are price movements?
I’m talking about any time a price changes in PredictIt. You know, those little green and red arrows with an amount next to them.
Most often they’re a meager few cents, but sometimes they represent a huge swing, especially after a major event.
These indicators display the net change between a contract’s last stable price, and it’s most recent price. Remember, a contract and a market are two different, but related things.
In the Steyer example above, the arrows reflect changes in a single-contract market. It’s also very common to see multi-contract markets in which one contract’s price movements vary from that of the other contracts in the market.
So… what pushes these contract prices to change on PredictIt?
Well, remember that the price you see is the cost at which the most recent transaction– one trader purchasing shares from another– has taken place. More on trade dynamics here.
Such transactions depend on the highest price a trader is willing to pay for shares– and the lowest price another trader will sell them– at a given time.
Like economics, the prices offered in this supply and demand curve can depend on how traders react to various occurrences, such as a controversial tweet, or news of a high-profile political endorsement. For the remainder of this post, we’ll take a look at some of the most common of these occurrences to look out for.
Common factors that drive price movements
Here are some factors that can affect trader opinion, and thus drive price movement:
Political events
This is the most obvious one and can include election results, a bill passing the House, an executive order, a controversial quote on the campaign trail, etc.
Example:
Biden’s strong showing on Super Tuesday, and the unification of moderate Democratic candidates behind him, roughly doubled the price of his contract in the Democratic Nominee market from $0.40 to $0.80.
Non-political events
Yes this is intentionally broad, but can really be anything external to politics, not falling into one of the more specific categories below, that affects the market in which you’re betting.
Example:
The coronavirus pandemic and subsequent stock market crash has bolstered the price of a Democrat victory in November past $0.50, and doubled the YES price of a recession during Trump’s first term from $0.35 to $0.70.
Public predictions made by professionals
Get to know the more frequent, successful PredictIt bettors; the best way to follow them is via Twitter.
Soon after they tweet a prediction, it is not uncommon to see a contract price shift as traders scramble to copy their position.
The magnitude of price change is correlated with that pro’s influence; pay attention to their Twitter follower count and how many people engage with their tweet(s).
Example:
When Rainbow Jeremy, probably the most influential pro, tweets his prediction for a market, the contract price often moves several cents higher accordingly.
Newly-released polls
Polls are usually the main price driver of election markets, but can influence others like presidential approval markets as well.
Majority of traders keep up with polls via RealClearPolitics and FiveThirtyEight. The polls listed on these sites are usually reputable, but always be sure to read them yourself.
Barring other factors, in election markets it’s common to see each candidate’s contract prices strongly correlated with the most recent election polling results.
Example:
The post Super Tuesday Washington primary market saw Bernie around $0.60 to win, and Biden at $0.40. Swayable released a new poll putting Biden at a two point lead in the state, and their prices swapped to Bernie: $0.40 and Biden: $0.60.
(It’s important to note this price swap was also accentuated by trader bullishness around Biden’s momentum after his recent Super Tuesday triumphs).
Viral news or claims
This can include news segments, public comments, or tweets, usually made by an influential person or entity on a topic related to the PredictIt market they affect.
The news does not necessarily need to be rooted in evidence; often it’s pure speculation.
Example:
Political commentator Matt Drudge announces, with no evidence, that 2020 democratic primary candidate Mike Bloomberg is adding Hillary Clinton as his VP. Clinton YES share price spiked 700% as a result.
Insider trading
Insider trading is when an individual possesses non-public information that provides them an advantage in predicting an outcome. This is an identical concept to insider trading as it applies to the stock market.
Insiders could be pollsters aware of a new poll’s results before it is publicly released. They could be high-level campaign advisers aware of a candidate’s choice for vice president, before it is announced to their constituents. You get the idea.
Currently, PredictIt doesn’t really enforce insider trading on its platform, nor is there any way to reliably prove it. Just expect it to play a part in the pricing of any market where it’s possible.
Example:
In the days leading up to the New York Times’ dual endorsement of Elizabeth Warren and Amy Klobuchar as the democratic nominee, both candidates’ YES prices were the two highest in PredictIt’s “Who will the NYT endorse?” market.
While not impossible to estimate this outcome, it seemed the certainty of traders holding these two contracts was higher than it should be, given the available public information.
Though it was not directly proven, people suspected that NYT employees– some of which likely had insight into the decision before it was made– were insider trading in these two contracts to make a quick buck.
Market manipulation (spoofing)
Remember, a market’s price depends directly on the cost at which shares are exchanged. Because of this, traders, at times, have the power to influence how high or low this price appears.
Market manipulation and spoofing occurs when traders deliberately buy and sell a certain number of shares at a certain cost in order to force the market to display a desired price. The motivation behind this isn’t always clear.
One explanation suggests it as a strategy by supporters of a political cause to inspire an outcome they support to appear more probable.
As prediction markets like PredictIt gain exposure in mainstream political media, trader-determined odds in high-visibility markets often get reported on by media outlets and amplified to the public.
Of course, spoofing requires spending money to buy shares, with no guarantee of profit, but this can be a small price to pay for this supposed publicity.
Example:
In early February, there was evidence that Bloomberg shares in the Democratic Nominee market were being spoofed to show artificially high prices.
While not explicitly proven, the suspicion was that Bloomberg’s supporters were buying out cheaper shares each morning and subsequently driving up his price to give the impression of a more popular candidate to win the nomination than he actually was.
Anyhow, this list should be enough to give you an idea of what events affect trader opinion. Keep in mind these are not comprehensive; there can be endless factors influencing the price in a given market. My hope is by providing some of the most common ones, you can better identify them on your own.
Checklist to identify the factor behind a price swing
If I see a price has changed for a market, and I don’t know why, I do the following:
- Google keywords from the market to see if there are any breaking news headlines involving the topic
- Check to see if the pros have tweeted anything lately
- Check what news outlets, journalists, and political pundits are tweeting
- If it’s an election or approvals market, I’ll check fivethirtyeight.com or search google to see if any new polls have been released
- If all else fails, scroll through the recent comments under the market on PredictIt to see if other traders know what’s going on
A side note on comments: A PredictIt comment itself is rarely enough to move a market in any meaningful way.
Ignore the pumps; these are comments encouraging suckers to buy into a position that the commenter likely holds. The price rises as a result and the commenter dumps their shares for a profit soon after. Once in a while, among the pumps there will be a piece of real news. The key is just to make sure that you always verify any commenter’s claim on your own before believing it to be true.
Anyway, this is a quick checklist I use when trying to figure out why a market’s price has moved. Again, it’s not a comprehensive method, but just a reliable starting point.
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- March 16, 2020
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