The Iowa Electronic Markets allow anyone with an Internet connection and $5, even a trader in Dhaka or Novosibirsk, to buy and sell securities in elections. The example here depicts, in simplified form, how a market run during the 2004 presidential election operated. A trader initially purchases a portfolio for $1, thus obtaining one contract for Bush and one for Kerry.
After the election, the payout is based on the share of the vote each candidate receives. Despite the small sums transacted, market prices before an election have proved to be surprisingly good at predicting a race’s outcome.