What is Opinion Trading?
Opinion trading, commonly referred to as prediction markets, is an innovative and decentralized method that allows users to speculate on the likelihood of future events. Unlike traditional betting systems, where participants place wagers on fixed odds determined by a bookmaker, prediction markets operate as dynamic, crowd-sourced platforms where users trade shares or tokens representing different possible outcomes. These tokens fluctuate in price based on supply and demand, effectively reflecting the collective judgment of the market participants.
1
Market Creation
- A prediction market is created around a specific question with defined outcomes.
- Binary markets have two options: "Yes" (event happens) or "No" (event doesn’t happen).
- Multi-choice markets allow more options (e.g., election candidates, sales forecasts).
2
Token Pricing & Initial Trading
- Tokens are initially priced between $0 and $1, representing probability.
- $0.70 for "Yes" = Market thinks there’s a 70% chance the event occurs.
- $0.30 for "No" = Market thinks there’s a 30% chance it doesn’t.
- Early traders buy/sell based on their research or intuition.
3
Dynamic Price Adjustments
- Prices change in real-time based on supply and demand.
- If more people buy "Yes," its price rises (probability increases).
- If more people sell "Yes," its price drops (probability decreases).
4
Market Resolution
- When the event concludes, the market settles:
- If the event happens, "Yes" tokens pay out $1 each; "No" tokens expire worthless.
- If the event doesn’t happen, "No" tokens pay out $1; "Yes" tokens expire worthless.
- In multi-choice markets, the correct outcome token pays out, others expire.
5
Profit/Loss for Traders
- Traders profit by:
- Buying low, selling high (e.g., bought "Yes" at $0.40, sold at $0.70).
- Holding correct tokens until settlement (e.g., held "Yes" at $0.60, got $1 at payout).
- Incorrect bets lose the amount spent on tokens.
