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Nelson Explains IEM Trading

One futures market indicator is IEM a small-futures exchange run by the faculty at the University of Iowa Henry B. Tippie College of Business. They have been forecasting election results since 1988 based on a market where traders buy and sell contracts centered on the latest political news. Traders purchase and sell these contracts based on whom they think the most-likely candidate will be to win the election, not on actual personal preference. There are 3,000 registered accounts on IEM but only 1,100 have made transactions since the market opened in June. The vast majority of traders -- 99 percent -- are living in the United States and half of them are academics. The site which is research based is a not-for-profit trade exchange where traders do not make hundreds or thousands of dollars. In fact for every contract won, traders make $1. They are limited to making transaction amounts ranging from $5 to $500. But for all intensive purposes, IEM works very much like a market in which traders can buy and sell at any time they want. According to economic professor FORREST NELSON of the University of Iowa, markets are stronger indicators when it comes to forecasting presidential elections than polls. "There is a financial initiative to get it right," said Nelson, "The numbers are immediate feedback to traders, which is better than a civil service poll. And it causes traders to collect more information (before purchasing or selling a share)."

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