Trading in the Hivemind El Niño Prediction Market I: the UI
The Agora User Interface makes trading in the El Niño Prediction Market straightforward.
Introduction
The Hivemind El Niño-Southern Oscillation (ENSO) prediction market is hosted on the Hivemind Agora platform. Prediction markets hosted on Agora can be traded using the user interface (UI) or the application programming interface (API). In this post we will illustrate how the UI can be used to trade in the ENSO market.
The markets
After logging into the Agora platform we will see a list of markets on the left hand side of the screen. The orange dot to the right of the market name means that the market is open for trading. We can select a market from this list.
Creating a contract
After selecting a market we are shown the current prices. The outcome space for NINO3.4 SSTA is divided into intervals of 0.1°C. These intervals are closed on the left and open on the right: e.g. the interval [1.1,1.2) includes the value 1.1 but not 1.2 which is in the next interval. The leftmost and rightmost intervals extend to minus and plus infinity respectively.
The number of credits we have in this market is shown at the top of the screen. Each monthly market has a separate account so the 500 credits shown for the AUG 2019 market can only be used in this market and are not transferable to other months.
Before we can trade we must create a contract that covers one or more outcomes. Contract definitions are specific to a participant; other participants cannot see our contract definitions.
To create a contract we select the + icon in the CONTRACT column. We then select which outcomes this contract will cover. Let’s create a contract corresponding to an El Niño event by selecting all outcomes in which NINO3.4 SSTA is more than 2°C.
After selecting the outcomes we click CREATE. The contract must have a name before we can create it. Agora will automatically name the contract if it covers a range of adjacent outcomes but we can change this name to anything.
Once our contract has been created it appears on our list of contracts. Although the contract has been created we still haven’t bought any so we can delete the definition. The price shown is the price per contract for a small order. Larger orders will result in some slippage in this price.
Placing a trade
Once we’ve created a contract definition we can buy some. We can do this either by specifying how many units of the contract we would like in our inventory in the QUANTITY column or by specifying the change in inventory in the ORDER column. Once this is done Agora will quote a price. In this case the order is small so the price quote is the same as the price given.
If the quote is acceptable we click BUY to make the trade. Our inventory for this contract will be updated. The inventory of contracts includes two valuations: The instantaneous value (INST. VALUE) is simply the current price of the contract multiplied by the number of units held. The liquidation value (LIQ. VALUE) is the price we will receive for selling all 10 contracts. In this case the liquidation value is slightly smaller than the instantaneous value because it includes the effects of price slippage.
To see the weighting associated with a contract we just have to click on that contract. In the figure the “La Nina Event” contracts covers outcomes in which NINO3.4 SSTA is below -2°C.
Basket trades
Suppose we want to shift our exposure away from El Niño towards neutral and La Niña conditions. We can put in an order to sell the 10 contracts we have and buy some contracts we’ve created associated with cooler temperatures. Agora will provide per contract quotes for the orders on individual contracts but it will also provide a quote for the entire basket. If we select the basket quote all the orders will be treated as single trade. As well as being convenient, changing our overall position this way removes the risk that prices might move against us (due to other people trading) while we are executing the separate parts of the trade.
Monitoring P&L
By selecting the head-and-shoulders icon on the left we can see a list of our accounts. We have a separate account for each monthly market and credits in one market are not transferable to another market. Selecting an account gives us a summary of our positions and the profit-and-loss (P&L) for that account.
The total liquidation value is the total number of credits we would receive for liquidating all our positions in this market, this is not equivalent to the sum of the liquidation values of the individual contracts because liquidating one contract will impact the prices of the remaining contracts we hold.
The P&L is calculated as the sum of all the outstanding credits we hold in this account and the total liquidation value of all our positions minus our original credit endowment.
Summary
Creating contracts and trading them is straightforward using the Agora user interface. The UI also supports the simultaneous trading of multiple contracts (basket trades).
In the next post we will look at how the Agora API can used to trade in the ENSO market programmatically.
