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The Limitations Of Tradesports

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by Felix Salmon
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Nov 15 2007 12:00am EDT

The Limitations of TradeSports

Last week, I wrote about the TradeSports contract on whether Alex Rodriguez would stay at the Yankees. It might be "a screaming buy," I said, but warned that it was very illiquid.

So what has happened to the contract now that A-Rod is known to want to stay in the Bronx? It's essentially dried up entirely. Of the six trades in the contract yesterday, all but one of them had a volume of 1, and the sixth, earlier on in the morning, had a volume of 11. Right now, the bid-ask spread looks like the Nile Delta: the contract is bid at 37.2 and offered at 99.5.

In the financial markets, volume normally goes up at inflection points like this. On TradeSports, by contrast, that doesn't seem to happen. I'm not entirely sure why that should be, but it is a problem for anybody with a trading (rather than buy-and-hold-to-maturity) strategy.

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