ForecastTrader Contracts are YES or NO answers to specific questions and the version with the correct answer pays $1. Some of the questions are as follows:
- Will the U.S. unemployment rate exceed 4% in March?
- Will 2025 be the warmest year on record?
As I write this on Friday morning, the S&P 500 is down 3% year to date and the Atlanta Fed’s estimate of first quarter GDP is for a decline of 2.4% on an annualized basis.
At the same time, the IBKR ForecastTrader contract asking “Will the U.S. economy enter a recession by the end of Q2 2025?” is currently priced to reflect a 27% likelihood that such an event will happen and a 73% chance that GDP will either remain flat or expand in the first or second quarter, since a technical recession is defined by two consecutive quarters of negative annualized GDP prints.
Source: ForecastEx
That means you can buy a YES contract for just 27 cents right now and earn daily interest on the closing price at a rate that is only 0.5% below the fed funds rate (3.87%) until the contract resolves in 201 days. If the Atlanta Fed’s prediction remains negative over the course of two consecutive quarters and a technical recession becomes increasingly likely, the YES price could surge to 80 or 90 cents. The interest is based on the instrument’s mark to market, so in such a scenario, the income will increase before you receive your potential $1 payout at settlement.
The Role of Irrational Pricing
The fascinating thing about these markets is that unlike stocks, there are almost always opportunities created by undervalued contracts. The reason undervalued contracts exist so frequently is that people tend to cling to their favorite themes or political candidates, leading to irrational pricing.
In our minds, the sum of all possibilities often adds up to more than 100%—we overestimate the likelihood of multiple outcomes happening simultaneously. However, the ForecastTrader market enforces rationality by ensuring that every time the combined bids for YES and NO exceed$1.00, a contract is automatically executed—correcting mispricing and bringing the market back in line.
Stocks can stay undervalued or overvalued for years, but with forecast contracts, the clock is always ticking—making timing and strategy key.
To learn more about ForecastEx, view our Traders’ Academy video here
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Disclosure: Forecast Contracts
Forecast Contracts are only available to eligible clients of Interactive Brokers LLC, Interactive Brokers Hong Kong Limited, and Interactive Brokers Singapore Pte. Ltd.
Disclosure: ForecastEx
Interactive Brokers LLC is a CFTC-registered Futures Commission Merchant and a clearing member and affiliate of ForecastEx LLC (“ForecastEx”). ForecastEx is a CFTC-registered Designated Contract Market and Derivatives Clearing Organization. Interactive Brokers LLC provides access to ForecastEx forecast contracts for eligible customers. Interactive Brokers LLC does not make recommendations with respect to any products available on its platform, including those offered by ForecastEx.
Disclosure: ForecastEx Market Sentiment
Displayed outcome information is based on current market sentiment from ForecastEx LLC, an affiliate of IB LLC. Current market sentiment for contracts may be viewed at ForecastEx at https://forecasttrader.interactivebrokers.com/en/home.php. Note: Real-time market sentiment updates are only active during exchange open trading hours. Updates to current market sentiment for overnight activity will be reflected at the open on the next trading day. This information is not intended by IBKR as an opinion or likelihood of a potential outcome.
Disclosure: CFTC Regulation 1.71
This is commentary on economic, political and/or market conditions within the meaning of CFTC Regulation 1.71, and is not meant provide sufficient information upon which to base a decision to enter into a derivatives transaction.
The best undervalued opportunity is shorten the market. It is only the start. I wish I could paste my YTD profits here. Betting against Trump policies was so obvious. So easy. I can’t understand in which world mass deportations, mass layoffs, tariffs, cutting costs erratically, threatening our friends and befriend Russia would be a good environment for business and growth. And yet… some people believe in this.