Frequently Asked Questions - FAQ
Forecast Contracts are an investment instrument for trading future outcomes of specific events with a yes/no or result. They provide a way to express your view on whether an event will or will not occur and receive a payout for the right prediction. In addition, Forecast Contracts pays interest in the form of coupon incentives for the length of the contract.
- Choose an Event: Select an event from the list of available markets. These events range from economic data releases and Fed decisions to elections and climate-related events.
- Choose Yes/No: Decide whether you think the event will happen ("Yes") or not happen ("No").
- Price vs. Probability: The price reflects the market's probability of the event occurring. Generally, the more likely the event is to occur, the more expensive the contract is and vice versa.
- Settlement: At the contract's expiration, it will settle at either $1.00 if the contract's answer is correct or $0 if the contract's answer is not correct. Earn while you wait: Forecast Contracts pay monthly incentive coupons based on the closing value of the contract.
- Earn while you wait: Contracts pay monthly incentive coupons based on the closing value of the contract. This money is earned regardless of whether the contract settles to Yes or No.
- Where to trade:You can buy a contract by opening an account with a qualified Futures Commission Merchant (FCM) who is a Member at ForecastEx. See the list of ForecastEx Members.
See more examples on how forecast contracts work.
ForecastEx event questions are related to economics, elections, government, and climate. Examples of the questions in Forecast Contracts:
- Will the increase in US Payroll Employment exceed 129,700 in October 2024?
- Will the US Federal Funds Target Rate be above 4.625% at the FOMC meeting ending November 7, 2024?
- Will the average US temperature in 2024 be greater than 54.12°F (12.29°C)?
- Trading Forecast Contracts offers a way to earn money even when the prediction is not correct by offering incentive coupons for the length of the contract.
- Forecast Contracts are priced low and have the lowest fees, which makes trading them easy for anyone.
- The fee is included in the price of the contract, so there are no surprises.
- The investments are fully collateralized so there is no risk to the trading ecosystem.
- As there’s no buyer-seller, trading Forecast Contracts is extremely simple and transparent.
- ForecastEx is the exchange and clearinghouse for Forecast Contracts. They are regulated by the CFTC, so your investments are safe.
A Forecast Contract’s value is based on the probability of the underlying event occurring. If there is a 50% chance of the event occurring, the value of the contract is $0.50. There is a 50% chance that it is worth $1.00 and a 50% chance that it is worth $0. Likewise, a contract is worth $0.70 if there is a 70% chance of the event occurring, and $0.10 if there is a 10% chance of the event occurring. In order to effectively price a Forecast Contract, an investor must determine what the likelihood of the event is. The probability of the outcome, determines the value of the contract.
You can trade Forecast Contracts by opening an account at one of ForecastEx's Members.
ForecastEx charges a fee of one cent per each contract or pair. The fee is included in the price of the contract. More details on ForecastEx's fee schedule can be found on the Regulatory Page.
Yes, Forecast Contracts are legal. ForecastEx LLC is registered with the Commodity Futures Trading Commission (CFTC) and is the Designated Contract Market ("DCM") and Derivative Clearing Organization ("DCO") for Forecast Contracts. Learn more on the Regulatory Page.
Forecast Contracts are a low-risk investment option that allows investors to profit from their knowledge in predicting the future outcomes of major events. They can also be used for lowering risks by hedging against uncertain market movements. Forecast Contracts incentivize long-term investment by distributing interest in the form of incentive coupons over the contract's lifespan. This provides a continuous reward for those who maintain their contracts.
Forecast Contracts harness the collective intelligence of investors who bid on Yes and No contracts to form accurate forecasts of future events. The correct answer pays $1.00. The higher the price of Forecast Contracts, the more likely the underlying event.
Unlike every other type of derivative, Forecast Contracts are not zero sum. Instead, Forecast Contracts pay monthly coupons, based on the daily closing value of the contract. These incentive coupons allow customers to earn competitive rates on the value of their contracts while waiting for expiration.
Forecast Contracts are uncomplicated and have a transparent market structure. With no sellers, only buyers, the absence of counterparties simplifies trading significantly. There are no specialists, market makers, or local interventions to influence prices. Furthermore, there are no premiums to pay or discounts to collect.
As ForecastEx has affiliated companies that also participate in its markets, it has implemented a comprehensive set of rules and procedures to prevent affiliate personal interest and conflicts of interest.
You can learn more details on ForecastEx Affiliates on the Regulatory Page.
How Forecast Contracts Work
Clients purchase contracts regarding economic data, capital markets, central banks, sovereign debt, and climate outcomes. These contracts include yes-or-no answers to questions about predictions, such as: Will the US Federal Funds Target Rate be set above a certain rate at the FOMC meeting ending date? Learn more about how the contracts work here.
About ForecastEx
ForecastEx is licensed by the CFTC and is both the exchange and clearinghouse for Forecast Contracts. Learn more about ForecastEx.