Event derivatives

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Event derivatives are contracts, usually traded over the counter, speculating on the outcome of a particular event, such as a major election or a sports match. They have only two outcomes, paying either 100 percent (if the trader correctly predicts the outcome) or zero (if he or she is wrong).

Although various entities had discussed launching event derivatives, the products really came into the public eye at the Futures Industry Association (FIA) conference in 2005, when two separate exchanges, the Philadelphia Stock Exchange (PHLX) and HedgeStreet, announced that they intended to offer binary event derivatives. Neither exchange has been able to generate enough liquidity for the products to really take off, although HedgeStreet still offers event derivatives and has continued to add products to its list.[1] In February 2009 HedgeStreet added binary options based on Initial Jobless Claims, European Central Bank Rate Announcements on interest rates, and it plans to add Nonfarm Payrolls and Unemployment Rate contracts to the roster.[2]