How to take part in an AGORA prediction market

Mark Roulston, Senior Data Scientist •

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The first time you are invited to take part in a prediction market on AGORA, you’ll receive an email invitation from the market maker. You’ll need to accept the invitation and follow the link provided to create a personal account on the platform. Once you’ve logged in you’ll see a list of the market(s) you can participate in on the left side of the screen. A selected market appears on the right.

A market (whether numerical or categorical) has two or more possible outcomes, but the outcomes are defined so that one, and only one, must occur.

Each outcome has a price which is displayed on the graph on the right of the screen. The sum of the prices of all outcomes is always 1.00.

As an example, and to show you how a market works on AGORA, we’ve set one up that aims to identify the killer in a game of Cluedo.

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This market has six possible outcomes and the rules of Cluedo guarantee that one of these characters must be the killer. Each outcome has a price between 0.00 and 1.00, in this case, they all have the same price. When the outcome is known you will receive 1.00 credit for each unit of the actual outcome you own. If you think a particular outcome has a 25% chance of occurring, its fair value is 0.25 (if the price is less than 0.25 then it’s underpriced.)

You have been given 1,000 on-platform credits to play with. To buy one or more outcomes you need to create a contract that covers them. For example, in this game of Cluedo, you were dealt the cards for Miss Scarlett and Prof. Plum so, as you know they can’t be the killer, you create a contract for the other four characters. You do this by clicking “create a new contract” and selecting them. Contracts are a convenient way for you to trade multiple outcomes, and they are visible only to you.

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After you create a contract it will appear on your list. The price of a contract is just the sum of the prices of the outcomes it covers. Once created, you can buy one or more units of the contract. When the actual outcome becomes known and the market is settled all the contracts covering that actual outcome will be worth 1.00 credit while all other contracts will be worthless.

You can buy a contract either by changing the quantity you want to own or by specifying the change as an order. You are then quoted a price—this may differ from the current price if the order is quite large. If you are happy with the price, you accept it, and your inventory is updated. If you want to sell a contract you just place a negative order or change the quantity column to a lower number.

You can put in an order for 1000 units of the contract which covers all the characters you are not holding.

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This order will cost 0.702 per contract, or 702 credits for 1000 units.

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Each contract holding has two valuations: instantaneous (inst.) and liquidation (liq.). The instantaneous value is the number of contracts multiplied by the current price while the liquidation value is what you will get if you sell your entire holding of that contract right now.

You cannot “short” contracts on AGORA (sell contracts you don’t own); you have to own a contract before you can sell it. Because the prices of all outcomes sum to 1.00, if any outcome is overpriced there must be an outcome that is underpriced. Instead of selling overpriced outcomes, you can buy the underpriced ones.

You can also buy and sell different contracts together: if you enter multiple orders you will be quoted a price for the entire basket. Accepting a basket price means all the trades are executed together, avoiding the risk that prices move against you between trades.

For example, suppose you want to sell 100 units of your first contract and buy 100 units of a contract for Col. Mustard. You can do these two trades simultaneously by selecting the basket quote.

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Summary

When playing in an AGORA market the key things to remember are:

  1. - The outcomes are defined so that one, and only one, must occur.

  2. - The prices of all outcomes together always sum to 1.00.

  3. - Each contract covering the outcome that occurs will pay out 1.00 credit.

  4. - Do not buy an outcome if you think its price is higher than the probability of it happening.