Note: HedgeStreet (now known as Nadex) is the binary betting site only for USA residents. International users should look at IG Index.
HedgeStreet, based in San Mateo, will list contracts that let investors bet on or guard against changes in gasoline prices, mortgage rates and other costs of daily life. Contracts will sell for no more than $10 apiece, with each transaction of as many as 100 contracts carrying a fee of $5.
HedgeStreet, approved in February by the Commodity Futures Trading Commission, offers cheaper versions of some products available at the Chicago Mercantile Exchange, the Chicago Board of Trade and the New York Mercantile Exchange, as well as contracts not listed on any other U.S. market.
 'Hedgestreet - the new player in the exotic derivatives markets' Click on the image to see it in more detail. |
"There has a been a century-long trend toward the democratization of finance and insurance, and HedgeStreet is one example of how this is going to proliferate more and more," said Robert Shiller, an economics professor at Yale University in New Haven, Conn., who discussed the exchange with HedgeStreet co-founder John Nafeh. The U.K. and Ireland are among countries that also have derivatives exchanges for individuals, he said.
HedgeStreet Inc., a Web-based financial exchange approved by regulators in February, will try to lure individual investors to the $200 trillion derivatives market when trading opens Oct. 1 - 2004
Derivatives are financial obligations whose value is derived from such underlying assets as debt and equity securities, currencies and commodities. Banks, companies, and hedge funds and other institutional investors are their biggest users, with contracts traded on exchanges typically valued at 50,000 to $1 million.
HedgeStreet, based in San Mateo, will list contracts that let investors bet on or guard against changes in gasoline prices, mortgage rates and other costs of daily life. Contracts will sell for no more than $10 apiece, with each transaction of as many as 100 contracts carrying a fee of $5.
'We're democratizing derivatives trading,' HedgeStreet co- founder Russell Andersson said in a phone interview. 'We're giving access to anyone who would like to participate.'
HedgeStreet, approved in February by the Commodity Futures Trading Commission, offers cheaper versions of some products available at the Chicago Mercantile Exchange, the Chicago Board of Trade and the New York Mercantile Exchange, as well as contracts not listed on any other U.S. market.
"We don't really see ourselves as being competitors to the other exchanges because we are offering different types of products to a new type of audience," Andersson said.
HedgeStreet's contracts include those tied to gasoline, gold and the dollar's exchange rate against the euro, the pound, the yen and the Swiss franc.
The market also lists contracts on housing prices, unemployment and jobs, inflation and the rate at which banks lend to each other overnight, known as the federal-funds rate, as well as mortgage rates, retail sales, industrial production, hospital service and prescription drugs.
The market opened this month to a "handful of people" including friends, family and scholars, said Michael Connor, the company's president. There has been no trading yet.
The exchange plans to sign up several thousand people before Oct. 1, Connor said. Individuals can open trading accounts with a $500 minimum and buy and sell directly at the exchange without using brokers.
New contracts will be added based on customer demand and will be linked to events with "real economic consequences," he said. The market won't offer contracts on celebrities, sports or politics, said spokeswoman Ursula Burger.
The exchange offers a contract it calls a hedgelet. They are listed in pairs and let traders to bet whether, for instance, the average price of a gallon of gas will exceed $1.927 in a given week. A "yes" contract pays out $10 if the price exceeds the target; a "no" contract pays out if it doesn't.
There are about 22 million equity brokerage accounts in the U.S., and fewer than 100,000 trade derivatives, Andersson said. "The opportunity is to go and offer products to the remaining 21.9 million," he said.
We tried to not get involved with that event market because of the stigma around it, and we only list events that have economic consequences. Macroeconomic indicators have a huge interest for hedge funds. Banks also have an interest in those.  |
John Nafeh, HedgeStreet founder, chairman and CEO |
HedgeStreet founder, chairman and ceo John Nafeh stated that the exchange will focus on economic event-driven contracts. There will be no terrorism-based or political event types of instruments.
The world market for derivatives traded outside exchanges is valued at $197 trillion, the Bank for International Settlements said in May. That's 17 times the size of the U.S. economy. The value of contracts at derivatives exchanges was about $17 trillion, it said in June.
"There has a been a century-long trend toward the democratization of finance and insurance, and HedgeStreet is one example of how this is going to proliferate more and more," said Robert Shiller, an economics professor at Yale University in New Haven, Conn., who discussed the exchange with HedgeStreet co-founder John Nafeh. The U.K. and Ireland are among countries that also have derivatives exchanges for individuals, he said.
HedgeStreet was founded by Nafeh's Portola Valley-based investment company Pareto Partners. Investors also include a hedge fund and an overseas venture-capital company, spokeswoman Burger said, declining to name them.
HedgeStreet is a new financial market that gives online investors the opportunity to trade innovative financial instruments based on economic risks in investors' daily lives-like the price of gas, changes in real estate values and the rise or fall of interest rates. Until today, only a few large institutions on Wall Street and affluent investors have been able to trade these types of instruments. Now, HedgeStreet is making them available to everyone.
So now HedgeStreet has joined the mix with Betonmarkets, ClickOptions, Refcospot (this one also offers its products to US residents), ClickOptions, Binexx, Binarybet and Boxoption all competing for the exotic derivatives market.
Whether the product offering is referred to as fixed odds financials,exotic derivatives,binary bets,binary options,digital options,digital bets,exotic options,box options,click options...etc (all of them want us to believe their product offering is unique 
the essential mini-derivatives definition remains the same.
HedgeStreet is a financial market that lets online investors trade financial instruments based on the economic risks in their daily lives - things like the price of gas at the pump, changes in real estate values, and the rise and fall of interest rates," explains Russell. "HedgeStreet is a fully fledged exchange that enables the hedging and trading of every day risks that cannot be effectively managed through other methodologies. Approximately 20 million Americans have online equity brokerage accounts but only a fraction of these actually trade derivatives. We believe that a fair portion of the remaining number are likely to participate over time, provided the methodology for doing so is easy to understand and it is financially and technically within their grasp |
Andersson VP instrument origination and co-founder |
For people who read this article and might ask why foreigners would be forbidden by from speculating with HedgeStreet:
From the CFTC:
========
As part of its application, HedgeStreet also submitted an undertaking that HedgeStreet and persons acting on its behalf will not engage in fraudulent conduct. Since HedgeStreet will be a nonintermediated market, this undertaking will help to ensure that HedgeStreet customers receive antifraud protection analogous to the antifraud protection applicable to more traditional markets.
========
Staff considered the application of the Bank Secrecy Act ("BSA"), as amended by the USA Patriot Act, to HedgeStreet. In this regard, DCMs and DCOs are not among the specifically identified "financial institutions" subject to BSA requirements. HedgeStreet noted in its application that: (1) the settlement bank, Union Bank of California ("UBC"), would only accept funds from a U.S. bank, savings and loan, credit union or similar entity, all of which are subject to BSA requirements; and (2) UBC itself has in place a program to combat money laundering as required by the BSA. Moreover, HedgeStreet has advised staff that it intends to retain an outside firm to conduct customer background checks, which would help to address similar concerns.
========
The ad starts out by asking "Are you a person with strong opinions?" The pitch seems to be focused on argumentative people. ("Do you find yourself getting into little debates with your buddies about things like whether Bay Area housing prices will continue to go up?") The pitch includes a short list of areas in which they have claims ("gas prices, housing prices, oil, gold and more"), and touts the fact that the trades (they never say "bet") are person-to-person. ("If you buy a Hedgelet that says that gas prices will rise, then someone else is buying one that says that gas prices will fall.")
I think HedgeStreet could turn out to be very interesting and quite valuable, but at this point, their set of claims is still quite limited and all very short term. It might be fun for some people to bet on the short term direction of gas and crude oil prices (they have claims due September 1, September 30, and December 30), but in order for people to realistically hedge on housing prices, they need much longer time horizons.
They have been adding to their list of subjects. They now have metals, crops, currencies, economic indicators (sales, employment, CPI, interest and mortgage rates), as well as fuel and housing prices. This is much broader than when they started. And the markets are quite thinly traded. If they could add automated market makers to narrow the spreads, it might make it much more interesting for people to make trades which would be good for price makers, too.
HedgeStreet Radio Ad - [HedgeStreet | Hedgelets] - (MP3 file)
New Way To Profit From It - HedgeStreet @ CNBC - [HedgeStreet | event-driven futures markets | retail speculating and hedging | derivatives exchange] - (WMV file)Please do not copy/paste this content without permission. If you want to use any of it on your website contact us via email at 
traderATfinancial-spread-betting.com (remove the AT and substitute by @).
