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Negative Risk

See also: Low T

Negative risk is buying No shares in multiple brackets in a linked market, such that you are guaranteed to make money no matter how the market resolves.

For example, assume an election market in which you can buy Yes/No shares on the Democratic candidate or the Republican candidate. Initially the favored candidate is the Democratic candidate, but you believe the Republican candidate will win and you buy 100 Democratic No shares at 35 cents. A week later, the Democratic candidate makes a terrible faux pas on the campaign trail and you are able to buy Republican No shares at 35 cents.

Your potential payout chart will look as follows and you are guaranteed a profit of $23.50.

Market Outcome You Own Shares Average Price Value Risk Payout
Democratic No 100 35 35 23.50 93.50
Republican No 100 35 35 23.50 93.50