Settlement and resolution: what happens to your position

Two ways a position ends

• You sell before the end. The result is fixed at the price you sell at, whatever the outcome turns out to be.
• You hold to settlement. The outcome decides the result: $1.00 per contract if your side wins, nothing if it doesn't.

While the market is open you can sell, as long as someone will buy at your price. Once trading closes, the position waits for settlement.

When the question is decided

Each market resolves against the source its rules name, using the measure and the date they specify. ForecastEx, the exchange, determines the outcome and settles every contract automatically. You don't need to do anything.

A monthly egg-price market resolves on the Bureau of Labor Statistics' published average price for a dozen Grade A large eggs. A governor's race follows the results published by the state's election authority, and its rules say when it can settle before certification: once major news organizations have consistently called the race, or once every vote is reported and the margin is outside the recount threshold, and only if no recount or legal challenge is under way. How a prediction market resolves → covers what a set of terms pins down and where readers get caught out.

What you receive

The winning side receives $1.00 per contract; the other side receives nothing.

An example (illustrative prices). You hold 30 No contracts on "eggs above $2.25", bought at 55¢. You paid $16.50 for the contracts, a $0.30 transaction fee and a $0.05775 commission. Statements and confirmations show these amounts rounded to the cent.

• If the average comes in at or below $2.25, No wins and you receive $30.00, which is $13.14225 more than the $16.85775 you paid.
• If it comes in above $2.25, Yes wins and you lose the $16.50 you paid plus the $0.35775 in fees and commission.

Holding to settlement adds no second fee or commission. See the glossary entry for the terms.

When the money arrives

Settlement runs once a day, at 1:00 PM Central Standard Time:

The payout appears in your account balance at settlement, where you can use it for another trade or withdraw it. Your first two withdrawals each calendar month are free.

Selling instead of waiting

You can sell some or all of a position while the market is open, up to the number of contracts you hold, at the best price someone will pay. In a quiet market that can be well below the last trade. Sell is carried out as a purchase of the other side: ForecastEx has no sell order, so selling 30 No contracts buys 30 Yes contracts in the same market. The exchange then nets the Yes and No holdings against each other, which closes the position. Because a sale buys the other side, selling needs enough cash in your account to pay for those contracts; the $1.00 per pair comes back once the two positions net. The netting itself carries no charge, but the purchase is an execution with its own transaction fee of $0.01 per contract and its own 0.35% commission.

Selling fixes the result at the sale price. Carrying the example forward:

• If No has risen to 80¢, selling 30 returns $24.00: $6.82125 more than you paid, after both fees and commissions.
• If No has fallen to 30¢, selling 30 returns $9.00: $8.23125 less than you paid, after both fees and commissions.

Your first position → walks through the order itself.

What you earn while you hold

Open positions earn an incentive coupon, the exchange's name for interest on the cash behind each contract. Every contract on ForecastEx is fully backed by cash, which the exchange holds and invests. ForecastEx withholds an administrative clearing fee of 50 basis points (0.50% per year), deducted from the interest rate on that collateral before the coupon reaches your account. For example, if the collateral earns 4.00% per year, your coupon is based on 3.50% per year. Lumina receives no part of the coupon.

It accrues daily and is paid monthly. Three things about how it works:

The benchmark is the Effective Federal Funds Rate, published each business day by the Federal Reserve Bank of New York. The current rate is shown in the app.

If resolution is delayed

Occasionally an answer arrives late: the source agency delays a release, or ForecastEx opens a review of an outcome. ForecastEx then posts a public notice on its website, and your position stays open until resolution is confirmed.

Some markets write the fallback into their rules. The Los Angeles temperature market settles on a designated station's high on Weather Underground, and its rules say that if the site is temporarily unavailable, resolution waits until the complete data for that station and date can be read.

If a market is canceled

Rarely, a market can't be resolved as written: the data was never released, the event was canceled or postponed, or the outcome can't be determined against the stated terms. The market's rules say what happens then: a canceled election, for example, can resolve No. Where they don't say, ForecastEx can settle the market early or delay settlement, paying at the contracts' most recent prices or a price it sets. What you receive can be more or less than you paid. Transaction fees and commissions aren't returned.

Event contracts are the subject of ongoing litigation and regulatory review. Contracts may be modified, suspended, or terminated on little or no notice, and settlement may occur on non-standard terms.

After settlement

Activity statements, trade confirmations and the tax forms Interactive Brokers generates are under Settings → Reports. Lumina doesn't give tax advice; how settlements and coupons are taxed for you is a question for your own tax adviser.