Are prediction markets the "poor man's investing"?

[d5000]

I had thought a bit about the role of prediction markets as a competitor to traditional investment strategies in assets like stocks or gold.

A simple example: If you are investing in stock X with your goal being price Y (e.g. your buy price + 20%), you could be tempted to instead place a bet on a prediction market site that stock X would reach price Y.

This of course only applies to prediction markets with some relation to traditional markets. Of course it would also work with Bitcoin price bets.

The advantages on a first glance are that you are often much more flexible: you can place almost any amount, so even "poor people" can invest a few dollars instead of having to buy entire shares. Thus it becomes a bit like micro-investing.

In contrast to micro-investing, you can also place bets on more exotic events. If stock X for example is an aerospace company, you could bet on the event of that company announcing a new aircraft model, not only invest in their stock.

But both micro-investing and prediction markets, on the other hand, have a disadvantage: the fees in general are higher and the odds are a bit biased against the common bettors (see also this article (with anti prediction market bias)).

What do you think? Are prediction markets a more flexible and less costly "competitor" of investing? Or are the costs such a high disadvantage that we can't talk about them really being an alternative?

(Myself I have a quite nuanced opinion on that, but I will wait for some answers first.)

[Don Pedro Dinero]

I had thought a bit about the role of prediction markets as a competitor to traditional investment strategies in assets like stocks or gold.

A simple example: If you are investing in stock X with your goal being price Y (e.g. your buy price + 20%),

You’re going about it the wrong way, then, because what you’re doing is trading, and as a retail investor, you’re very likely to end up losing money.

you could be tempted to instead place a bet on a prediction market site that stock X would reach price Y.

This of course only applies to prediction markets with some relation to traditional markets. Of course it would also work with Bitcoin price bets.

The advantages on a first glance are that you are often much more flexible: you can place almost any amount, so even "poor people" can invest gamble a few dollars instead of having to buy entire shares. Thus it becomes a bit like micro-investing.

The way poor people trade is just like how they gamble on prediction markets, and in that context I don’t think ‘investing’ is the right word – it’s more like gambling. If you’re poor, you’re unlikely to have an emergency fund, and you’re gambling with money you’re going to need in the short or medium term, but you are doing it because you’re looking for a way out of your shitty situation.

What do you think? Are prediction markets a more flexible and less costly "competitor" of investing? Or are the costs such a high disadvantage that we can't talk about them really being an alternative?

They are a quicker and easier way for them to lose their money, making their situation even worse.

[OgNasty]

Prediction markets do make interesting investments. I think the real innovation is making it more fun. Investing in stocks has always been gambling to some degree. At least with prediction markets it is much more clear to the average person what it is exactly that they are betting on.

[swogerino]

Prediction markets do make interesting investments. I think the real innovation is making it more fun. Investing in stocks has always been gambling to some degree. At least with prediction markets it is much more clear to the average person what it is exactly that they are betting on.

I think not only to some degree but completely as gambling or equal to gambling we can say for sure about prediction or investment in markets. I think every option out there seem designed to be used against poor people and designed by the rich, take casinos for instance as poor people look at them as some way of saving themselves from the bad economy though most of the time they like that saying goes "they make a poor man poorer and a rich man richer" as the rich, the owners make a lot of money compared to poor ones.

[memehunter]

If you are investing in stock X with your goal being price Y (e.g. your buy price + 20%), you could be tempted to instead place a bet on a prediction market site that stock X would reach price Y.

The risk is also there to counter that temptation. By investing you are expecting 20% profit with a risk of 20% loss of your portfolio but on prediction markets you will get lesser odds for this 20% goal (I am talking in general not rare opportunities). Poor man would be cashing out early anyway (with profit or loss) just like traditional trading/gambling.
This could only make sense if the early cash out option is not there and the bet is for long term.
       

[davis196]

What do you think? Are prediction markets a more flexible and less costly "competitor" of investing? Or are the costs such a high disadvantage that we can't talk about them really being an alternative?

Prediction markets are a "competitor" of day trading, not investing. Investing is supposed to be long term. You invest in a bunch of assets, you build a portfolio and you are waiting for years for that portfolio to grow and to accumulate more wealth for you. Gambling on the prediction markets is pretty much the same as day trading. You place a bet on the outcome of an event(the price of stock X to grow by 20%) and you expect a profit or a loss tomorrow(or after a few days). This is a short term zero sum game, which has nothing to do with investing.
Anyway, gambling in general is the "poor man's investing". The biggest thing in common between prediction markets, gambling and day trading is the fact that more than 90% of all gamblers/traders end up losing money.

[d5000]

The way poor people trade is just like how they gamble on prediction markets, and in that context I don’t think ‘investing’ is the right word – it’s more like gambling. If you’re poor, you’re unlikely to have an emergency fund, and you’re gambling with money you’re going to need in the short or medium term, but you are doing it because you’re looking for a way out of your shitty situation.

"Poor" in this context for me means more somebody who doesn't want or is unable to buy the entire amount of stocks that would make sense for a real stock investment. That may be also middle class people who don't trust the stock market entirely and thus chose to invest only small amounts. Thanks for your opinion anyway

At least with prediction markets it is much more clear to the average person what it is exactly that they are betting on.

This is also the main advantage I see for prediction markets.

The question for me is if this advantage makes up for the disadvantages, like having no real ownership on company assets, and the high fees/commissions.

For me the answer is: it depends on your exact goal. The example I gave in the OP - betting on a stock to reach a certain price - is imo a bad use case and I would prefer microinvesting if I don't have the money to buy a stock portfolio with the risk profile I'd be comfortable with.

Instead I would prefer prediction markets if I don't want to really bet on the company's stock but on some other event related to the company, like the aircraft model example.

Prediction markets are a "competitor" of day trading, not investing. Investing is supposed to be long term.

I only agree partially here.

You can in my opinion use prediction markets for longer term bets and then it would approach the "investing" concept. However, it is maybe not what most people do - and in this case you're right: if you want to profit from short term swings in the betting odds, then it's similar to day trading.

[Dunamisx]

A poor man will always want an opportunity for himself to win Big when gambling, while a sensitive minded gambler will also consider the risk at which is at stake upon every attempt made to gamble, search with not want to compromise is opportunity and play a prediction market, except such a person is not being intentional or know about the actual condition that could be attached to it before playing, this is why a poor man should always exist from playing prediction market except you want to keep trying harder each time without winning.

[Jubilee58]

From the subject matter, the prediction market is not purely for the poor investors. Anybody can invest in the prediction market, weather you are a rich or poor investor. But the way i see the prediction market, it is more risky than the traditional investment market, and is more or less like gambling. Any investor in the prediction market should be very careful, you can loose your money within a short period of time. Prediction market is unlike the traditional investment where your investment grows in value over time, and is considered the best method of investing because their is the confidence to maximize profit over time.

[EluguHcman]

What do you think? Are prediction markets a more flexible and less costly "competitor" of investing?

Without getting this contradicted, it is acceptable that prediction market is an infrastructure of betting on traditional events which in other words described as gambling.
The only competition i finds in the prediction market is the innovations amongst platforms but for the insider betting on those events is what I oversights to be actions of investors risk management where every responsible bettors trades with caution.

So if I would give a direct answer, I will say yes, the prediction market is a more flexible competitive in the fact that you can engage in the market with any affordable amount.
It does not require as much capital as investment.

[Mhizlove]

Prediction markets do make interesting investments. I think the real innovation is making it more fun. Investing in stocks has always been gambling to some degree. At least with prediction markets it is much more clear to the average person what it is exactly that they are betting on.

There is a reason why it seems or feel clear, because of how you see the exact event that you bet or stake on but make sure you don't forget in a hurry that clarity don't mean that the risk will be less whether it's stock or the prediction market there is alot of uncertainty in it. When you say that it more of fun, this part can make someone forget that money is being involved so I will say that the real advantage isn't about fun or entertainment in any way you sees it rather it's about discipline and when to stop

[danherbias07]

I like the way you put it. It takes away the gambling part of prediction markets. I mean, someone who reads it will be more optimistic about trying the prediction market than investing in other things or trading.

Anyway, I have not really tried doing or using prediction markets, as I am not really into it. But there are times I was being urged to try because of how it became so popular here in our country. But you are right about one very important point. Anyone has access to it, and even those without a large amount of money can try the prediction market, unlike how it is with investments, where there's a minimum amount of money that must be invested.
Both are a gamble. I think I will pick the prediction market over the other. Not just because of the cheaper way to do it, but also because of the choice and how I can control it myself.

[CryptoHeadlineNews]

What do you think? Are prediction markets a more flexible and less costly "competitor" of investing? Or are the costs such a high disadvantage that we can't talk about them really being an alternative?

(Myself I have a quite nuanced opinion on that, but I will wait for some answers first.)

I literally can't call "prediction market" as a form of investing, but rather it can be called a different form of gambling, since you have to predict a certain outcome of an event, and if it doesn't go as predicted, you lose, which is unlike an investment, whereby a capital is set aside for a specific purpose in the future, and likewise it can be accumulated through different strategies. So in a nutshell, the best way and approach to treat prediction market, is knowing that it is gambling, since it has the potential probability of you either winning or losing.

[Hispo]

Honestly, I don't think prediction markets are a direct competition against traditional investing, regardless of your well explained points.
Investors seek opportunities and calculate their movements seeking to capitalize their already existing money in the long term.
On the other hand, in the betting and prediction markets there are a lot of degenerate gamblers seeking to risk their money for the sake of getting as much money as possible from their reckless behavior.
It is very different.

Though, I won't deny there are investors who have a very bad management of their money and risk and end up turning their investments into some kind of gambling...

[Dr.Bitcoin_Strange]

The prediction market could be flexible  but it's not in any way a competitor to the real investment. A real investment to a certain situations can be regarded as gambling, the situation I mean is when an investors (poor or middle class) does not do research on the stock they are investing on but decides to invest blindly without looking at the risk of that investment before going ahead to invest. It's just the lack of knowledge that let's some people do what they do all in the name of investment, for example, if someone predicts that the price of Bitcoin will go up and they have $20 to invest, why not just use the $20 to buy Bitcoin instead of going on prediction market to speculate on price for still a small profit? I call it small profit because the odds are also small for those prediction which are likely to be possible.

[d5000]

I literally can't call "prediction market" as a form of investing, but rather it can be called a different form of gambling, since you have to predict a certain outcome of an event, and if it doesn't go as predicted, you lose,

Indeed the high probability of a total loss (often around 50%) is a characteristic of prediction markets that puts it closer to traditional gambling. Some forms of trading, above all leveraged strategies and some exotic derivatives like binary options, have a similar probability of total loss, but these can't really be called "investing".

In theory, however, you could mitigate that risk by designing the bet in a way a win is more likely than a total loss. To return to the example of the stock price prediction: Instead of predicting a "strike price" (I don't know the correct term, strike price is from options) higher than the current price, you predict a (minimum) price lower than it. This would of course bring not very profitable odds in the case you win. But the possibility of a total loss is minimized, and you can trade the evolution of the odds like you'd trade a stock approximately.

[Findingnemo]

Lazy or ignorant man't investing would be more appropriate than poor, not every stock is that expensive so they can't own a complete share and if they are not then it's better to work on their finances first to save more then start investing.

Anyway, there is a huge difference between prediction market and traditional investing, which is capital vs wagering. If the bet is lost the entire wager amount is gone like 100% pf the capital to relate with investment but it is unlikely to happen in traditional investment, it can go down 20%, 50% or even 99% but 100% doesn't happen everyday.

[Mia Chloe]

I had thought a bit about the role of prediction markets as a competitor to traditional investment strategies in assets like stocks or gold.
A simple example: If you are investing in stock X with your goal being price Y (e.g. your buy price + 20%), you could be tempted to instead place a bet on a prediction market site that stock X would reach price Y.

First I'd like you to understand the fact that investing on its own is actually a form of using strategy to make predictions. Honestly speaking from experience one of the most experience demanding investments is actually stocks. It's far from gambling but people like to bring them close because both involve risks.

The average poor dude doesn't wanna buy stocks instead he wants to save that cash in a bank with 1% interest which in the end accounting for inflation puts him in a loss.

[Churchillvv]

What we call investment is gambling but with lower chance of losing than prediction market but however are the same, it’s just now unique as prediction market is going to allow low amount if not they are almost same thing. The fun now is, if you’re investing a good amount in a particular stock you can as well bet on it with more confidence because you have an investment in there but I think I will agree with you that it is more like prediction market is made for the average person to invest or make profit.

[jeremypwr]

There are a few people I know who buy and sell on prediction markets.
They all think they have some sort of edge and that is the reason they trade on these prediction markets.
I think prediction markets are a haven for insider trading so I stay away from them personally.