Introduction and Motivation

Since the beginning of human history, trade has been an essential part of the lives of the human race and has played an important role in the development of civilization. Very early, centralized places of exchange were established to facilitate trade, promote competition, and reap efficiency gains. All of these marketplaces had in common that transactions could only be undertaken when the counterparties were physically present at the location of the marketplace. This changed only in the last century, with the invention of first the telephone and later the computer. Today, most stock exchanges are either fully electronic or in the process of transitioning to such a state. The proliferation of the internet and web-based applications laid the groundwork for the facilitation and geographic dispersal of market transactions. This has led to an enormous expansion of the set of possible traders, yet had limited impact on trading overall. The reason behind this was the remaining requirement at most exchanges for trades to go through brokers, which – combined with the still substantial transaction costs – limited the set of traders mostly to investment professionals. The advent of online betting sites catering to private users alleviated these constraints, opening the door to a price discovery process that rapidly includes information of private investors.