While many are hearing about prediction markets for the first time, nearly a decade ago, anonymous trader Domer (@Domahhhh) was found at the margins of profit from the effects of unknown future events.
Political and economic issues are Domer’s specialty, although he does not shy away from the rather abstract facts either — for example. trades on the effect of Britney Spear’s conservatism and the blocking of the Suez Canal!
Now at a point where he nets PnLs of many hundreds of thousands of dollars per year (across multiple exchanges), much of Domer’s profits are due to his ability to amass an information advantage and his rejection of the Efficient Market Hypothesis.
Topics and Timestamps:
Note: Exact times will vary depending on current ads.
- 03:50 – Quitting full-time: playing poker, trading stocks.
- 10:35 – Mechanics of prediction markets: contract timing/pricing, swaps.
- 23:25 – Developing prediction markets: capacity for greater size.
- 28:45 – Research process: filtering facts, obtaining information.
- 39:10 – Trading: bid price vs actual price, bet size, trade structure.
Links and Resources:
Additional comments – Domer:
Let me offer just a bit more clarity on the stocks, so as not to paint too much pink…
In stocks, I specifically remember also doing a YHOO/BABA trade where the BABA stock that YHOO owned was worth more than YHOO’s market cap – their cash or something lol. This was the first major march, and then at SAFM the chicken company. I probably did a few more negatives and positives that I don’t remember, but the big negative I did was a leveraged oil company (very sensitive to oil prices) that initially doubled because it was very shorted and then oil was pumped and the stock crashed and the short got the last laugh. Actually I ran $35k to about $225k at its peak and then about $150k after about 18 months, so I was already back in the game and kind of left the stocks behind. These are rough approximations.
The other big negative reason I closed stocks was the tax treatment. As a sole trader in the US trading your own portfolio on a short-term basis, it’s really kind of shitty and you have to jump through a lot of silly hoops in order to qualify for better tax treatment. I had to think a lot about timing my sales with the calendar tax year and realized that I could have wild swings in income and wild swings in tax brackets. For example, I paid a lot of taxes in 2013 because my short-term stock gains were big, and then when I made that negative play and realized the losses in 2014, I couldn’t go back in time and pay less in 2013! And bearing the losses is burdensome. So the tax treatment of gains/losses was another major reason to return to the cozy embrace of prediction markets. I still trade stocks from time to time, but mostly as an extension of what I do. For example, I did a decent chunk of buying S&P products as I saw the initial surge of COVID in China. This is a good example of a low risk, high reward bet where I should have bet a lot more! And one of the incentives to be a little less careful.
One last thought that I haven’t had a chance to mention is that it’s interesting to me that there’s almost a prediction market in the stock market right now with this TWTR/Elon deal. I realize M&A trading is a whole subfield, but this one in particular has caught the public’s attention and stocks/options are moving wildly in reaction to Elon’s tweets. Which is very similar to how a prediction market works! You can imagine someone talking to their friend like, “I thought there was a 70% chance this deal would go through, but after that Elon poop emoji tweet to Parag, now I think we’re down to only 50% done. What do you think, did this poop emoji change your mind at all?”
