By Alan English
How much of a market-watcher are you? Do you have a feel for the way the Dow
Jones Industrial Average ebbs and flows? If watching the numbers is your thing,
you might find it profitable to trade those numbers too.
TradeSports, a P2P exchange which has been in the news lately for offering
its customers a contract on Saddam Hussein - they can speculate on how long he
will survive as Iraq leader - now has a comprehensive list of financial props to
trade also.
With more and more people joining and liquidity excellent across a huge range
of events, the appetite for market action among TradeSports members is such that
props on the Dow's performance have become hugely popular.
Bulls and bears come together thanks to the power of the internet and the
result is a dynamic trading experience. How does it work? Let's take the props
offered on the Dow's performance on Thursday, February 6.
The previous day the market had closed at 7985.18. Traders were offered a
choice of three contracts. The first was on the DJIA closing DOWN by 100 points
more, the second on the market being UP by 100 points or more and the third was
on it simply being up on the day - by even a fraction of a point.
Traders knew that Secretary of State Colin Powell was due to address the UN
on the Iraq issue. That would be the day's most decisive event. The market was
also pressured by tensions with North Korea and new productivity figures were
also going to have an effect, one way or the other.
All over Wall Street was an air of wait-and-see on Iraq. Investors, nervous
about entering the fray, stayed away. Speculative trading dominated. In such
circumstances, the TradeSports contracts were always going to be volatile - and
such was the case.
The DJIA dipped as soon as it opened, falling to 7953 and there was a
corresponding rise in the odds on the TradeSports Minus 100 prop. After opening
at +160 (or 38 on the 0-100 odds scale) it climbed to +122 (or 45). This meant
the market believed there was a 45 per cent chance of the DJIA closing 100
points or more down.
The Dow recovered, but then quickly slumped again. The bulls were nowhere to
be found: the contract for the Dow finishing up 100 slumped to +430 (or 19 in
0-100 odds), after opening at +230. Click here for an odds conversion table.
But when Powell spoke, telling the UN of proof that Iraq was hiding banned
arms, the market rallied and reached 7,990, a little higher than the previous
day's close. If you were betting on it finishing the day down 100, that was not
good news. Naturally, the contract shed points quickly - and was soon trading at
20. Meanwhile, optimistic traders pushed the Plus 100 contract up to 50.
Next on the world stage, France killed the rising market by saying the UN
inspections process must be strengthened. The gains disappeared. The market fell
to 7782 - 103 points down on the previous day. For bearish traders, this was the
breakthrough they had been waiting for and the Minus 100 contract rocketed 35
points up to 49.
Would the market keep falling or would it recover? That was the choice
TradeSports members had to make. As it turned out, the correct play for those
bears who had bought the Minus 100 contract was to sell right there at 49 and
take a profit. The market had been as low as 10, so profits could have been
handsome.
The bears who decided to hang on, hoping that the DIJA would finish the day
100 points down and the Minus 100 contract would 'settle' at 100 - meaning
greater profits for them - were disappointed.
Soon after, the market rallied again and finished the day at 7929.40 - down
55.88. In other words, not enough to make the bears' day. It was, though, a nice
payday for the bulls who took them on.
What would the next day hold? The data for Friday, January 7 included
non-farm payrolls and jobless numbers for January. Economists expected a gain of
60,000. And so, on TradeSports, began another frenzied day of speculating on the
rise and fall of the Dow. Sometimes profitable, sometimes not - but always
exciting.
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