Years ago, a futures exchange would be filled with shouting traders using the old-fashioned open outcry method. They picked up landline phones, threw up hand signals and muttered plenty of expletives.
That world is long gone now that CME Group (NASDAQ: NASDAQ:CME) and other exchanges have closed their trading pits. These days, there's a novel way for investors to take a position on potential price movements in CME futures markets, according to Interactive Brokers (NASDAQ: IBKR).
The Greenwich, Connecticut-based brokerage has partnered with CME to launch IBKR EventTrader, a new tool that lets investors buy and sell event contracts. Those who sign up can essentially make money by speculating whether the price of key futures markets will move up or down by the end of each day's trading session.
How It Works Once you select from event contracts in the Equity Index, Energy, Metals and Foreign currency futures markets, you're presented with a yes-or-no question, such as: "Will Henry Hub Natural Gas close above $7.20?"
Another question could be: "Will the S&P 500 close above $3,900 today?" Both "yes" and "no" will have a price. If you click yes, and are correct, you can receive a fixed payout of $20 — the max profit per futures contract minus the contract cost, fees and commissions. See below:
Event contracts are priced between 25 cents to $19.75 per contract and are quoted in 25-cent increments.
Who's This For? According to Steve Sanders, executive vice president of marketing and product development at Interactive Brokers, the initiative is a major part of the firm's educational segment.
"The target audience here are people who are not currently futures traders or options traders," Sanders tells Benzinga. "The goal is to get them to learn more about the markets."
The debut of IBKR EventTrader also comes at a precarious time for investors. There's constant chatter about a market crash and escalating concerns about a looming recession. Also, the bond market projects that Federal Reserve will continue hiking rates to curb spending.
"People are nervous about their bonds and stocks, wondering what to buy with how much money and what's going to crater," Sanders says. "With [IBRK EventTrader], it's not the same type of mindset."
In other words, it's extremely low risk.
"If you're following the price of oil or gold, you probably have some view of the market," he adds. "As opposed to trading futures, your risk is limited."
IBKR EventTrader is akin to CME's own recently launched event contracts offering, in which Interactive Brokers was also a participant in developing.
San Francisco-based Kalshi is another company that offers a digital option to trade on event outcomes. Last year, the startup raised $30 million in Series A funding from Sequoia Capital, billionaire Charles Schwab (NYSE:SCHW), KKR (NYSE: KKR) co-CEO Henry Kravis, SV Angel and Y Combinator.
Image: Courtesy of Interactive Brokers.
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