Are you confident you understand approaching weather better than the average person? Or even better than the average TV weather forecaster? New financial markets now let you hedge your risk against bad weather or profit by predicting almost any coming weather.
Take a timely hurricane example first. If you believe an approaching hurricane could hit your home, you can now buy shares on your own zip code in a landfall pool. If you’re correct, you get a payout from the pool of investors. You still suffer the damage, but you earn repair funds at the same time.
New York trading company Cantor Fitzgerald has built these markets and markets in rainfall and snowfall amounts, high and low temperatures on a given day and many more. A.J. Grossbardt, a market analyst for Cantor Fitzgerald, was in Alabama this week explaining the marketplace to meteorologists attending the National Weather Association’s annual meeting in Huntsville.
Don’t call this betting on the weather, Grossbardt said. “It’s a real financial market that we created at Cantor Fitzgerald, a real money platform where you can trade landfall, temperature, rainfall, snowfall,” he said. It is also licensed and regulated by the Commodities Future Trading Association, he said.
Using Dorian as an example, Grossbardt said traders could go to the landfall section of the website, choose a zip code and buy “contracts” or shares of the pool for that zip code. If the storm hits land within 75 miles of your chosen zip code, you get a split the pool. How much depends on how many “contracts” you bought.
There are fees between 2 and 4 percent on each trade, Grossbardt said.
Cantor Fitzgerald CEO Howard Lutnick was “really passionate about this being a possibility, especially the hurricane market. That was where we really started off,” Grossbardt said.
The website tradewx.com has been active since January, and Alabama investors have also been active in the new markets created. “We’ve definitely had a lot of trading there,” Grossbardt said. What are Alabamians investing in? In Birmingham, there’s one runaway favorite. “High temperature.”
The weather trading site was one of several new products displayed at the conference that continues Tuesday with an opening keynote address by Dr. Neil Jacobs, the acting administrator of the Nation Oceanic and Atmospheric Administration. Jacobs reportedly clashed with his boss last week over whether the Birmingham weather service was right to issue a statement disputing President Trump’s statement that Alabama was at risk from Hurricane Dorian.