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| Risk & Reward: New Products: Macro Machinations |
Flying Economy
John Ferry
08/01/2005
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HedgeStreet has offered economic hedging tools online to retail investors since
October 2004. “It’s possible to come to HedgeStreet and take general investment
views on economic variables,” says Russell Andersson, the company’s
cofounder.
Individuals can glean information about the market’s expectation
for future Federal Reserve interest rate hikes, for example. “You can come to
the exchange and participate in these markets and get a better understanding of
the likely outcome for various interest rate movements,” Andersson claims. “We
also have contracts on nonfarm payrolls, on initial jobless claims, on [ISM
Manufacturing] PMI and retail sales.”
In addition to economic and financial
derivatives, Andersson says the company is in the process of launching contracts
on real estate price movements and on the cost of gasoline.
The system
differs significantly from the economic derivatives offered by Goldman Sachs and
Deutsche Bank. Investors do not buy options or futures, but rather special
contracts called “hedgelets” developed by the company. The contracts let
investors speculate on whether a particular economic statistic will come in at a
given level. It costs $5 to trade up to 100 hedgelets. If the user bets
correctly, he or she collects $10 per hedgelet. “If I believe that I’m more
bullish or bearish on the American economy than the average person, then I could
come to the site and buy an option that reflected that view,” Andersson
explains.
If, for example, an investor has a bullish view of the U.S.
economy and expects the next nonfarm payroll figure to have risen by more than
the market consensus (a number derived from a poll of economists), he could go
online at HedgeStreet and buy a contract that will pay out if the number comes
in above the consensus. If he has a bearish view, he can purchase a contract
that pays out if the actual figure comes out below the consensus. “What
HedgeStreet can provide for an ultra-high-net worth individual is the ability to
participate in the markets and an ability to gain insight into the key questions
he should be asking his advisors,” Andersson says.
 Back to Main Article: Macro Machinations
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