I'm new to this, so I'd just like to understand.
Basic example, let's say There are 5 choices in a multi-contract market. I participate in 4 of them, and all 4 resolve to NO, so I earn nothing.
Where does the money for all 4 choices actually go? Does it just kind of vanish off the site, or does the winner collect it somehow?
Sorry if this seems naive, I'm new to trading and such.
Am curious about the same thing.
So I answered my own question a few weeks ago, but didn't publish it here. Here is how it works.
It's important to get this... this is something I didn't really understand and was subsequently confusing me.
Was your individual bet correct? Forget about "yes" and "no" and all that. Simply think "was my individual bet correct when the market closed?"
If it was correct, you earn money. If it wasn't correct, you earn no money - the other person who bet correctly on that choice gets the money.
Just think of it as two people who come to a betting table, you and me. We make a bet "will it rain tonight?"
I put forth $0.40, you put down $0.60. This adds up to a dollar in the center of the table.
If I turn out to be correct, I take the dollar in the center of the table. If you turn out to be correct, you take the dollar. Whomever is right, wins.
So the money doesn't "go" anywhere - someone simply wins it! That's how simple it is.
Now, on multi-contract markets, it works the same way with an important tweak:
Only one of the answers in a multi-contract market can resolve to YES, the rest must resolve to NO.
So if there are 5 choices in a multi-contract market, only one of those choices will resolve to YES when the market closes.
This means the rest of the other four answers will resolve to NO.
Taking my example above in the first post, let's say you participate in 4 out of the 5 markets. It is possible in this case for them all to resolve to NO - the only one you didn't bet on could resolve to YES - and let's say they do exactly that.
If all 4 answers are indeed NO when the market closes, it means I earn a profit on each - each choice resolves to one dollar because my prediction was correct.
But let's say out of those 4 answers, one of them resolves to YES. I bet NO on all of them, so I earn profit on three NO answers, and lose on the YES answer.
The YES answer (in my case) goes to the person who correctly predicted YES on that choice. Remember the betting table example above.
What's important is to bet yes only once in a multi-tiered market because only one answer will turn out to be yes.
Hope this makes sense, wasn't too long-winded and clears things up for you.
Multi-contract markets are simply a conglomeration of two or more yes or no markets. So, who will be the next Senator from State A, is actually:
Will person 1 be the next senator from State A Yes or No
Will person 2 be the next senator from State A Yes or No
Will person 3 be the next senator from State A Yes or No
So, for every one of those that you bet Yes, that do not get elected, the money goes to someone that bet No on that same person, not someone that bet Yes on the person who actually won.