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I'm new to all of this.

I have invested the minimal amount here just to play around because I want to learn how this works. Can someone explain the basics to me? I bought shares in popular votes yesterday and the price dropped today. Is that because more people bought the same vote or the opposite?

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Hi ceponatia---

The share price changes each time there is a transaction for a share at a different price. Each transaction has two-sides. If you buy a "Yes" on Obama's approval rating, that means someone else has just sold a "Yes."  So if the value of your "Yes" share drops it means that two people have just completed a deal --with one buying yes and one selling yes-- but at an agreed upon price (the "strike price") lower than what you paid. There are always two sides to the trade; two different people. All that's changinf is the price they agree upon.

It becomes more complicated with less popular questions.

Right now there aren't enough people on this prediction market and trading regularly. Another way of saying that would be that some questions lack "liquidity." As a result of that, you can't easily move in and out of a position. Look at the spread (the difference) between the cost of buying or selling the same share. If they are very close together, say only a penny or two apart, then the question is pretty liquid. When the spread is larger, life is more confusing. You might not be able to buy a share for less than 50cents, but if you try to sell it a moment later, no one will pay you more than a nickel to buy it back.

You may also notice that the Yes+No votes together don't always add up to 100%. This seems intuitively weird, but is also the result of not enough liquidity.

So if you're new to trading, try to stick to the more liquid questions. : )

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