NEW YORK (MainStreet) — American politics has always been a spectator sport.

Politicians play with our tax money while all we can do is sit on the sidelines, watch the action and suffer the consequences. Until now. Want to hedge your risk on Obamacare? Think the Keystone Pipeline will gain approval? Would you like to pad your portfolio with the timing of the Fed taper? An innovative exchange is offering a way for investors to profit on politics, converting Washington chaos into commodities.

The American Civics Exchange offers investors a "market-based political risk management solution," allowing users to make binary bets on political outcomes. These "all or nothing" futures contracts pay out a pre-determined value, or expire worthless. Previous offerings have included the length of the government shutdown, the debt ceiling deadline and the expiration of the Bush tax cuts.

"By hedging exposure to adverse political outcomes, participants are able to conduct their business with greater financial visibility and reduced variability due to factors beyond their control," the American Civics Exchange website explains.

While the free service is waiting for regulatory approval, traders are using play money to place their bets. However, each month the top three performing portfolios will be awarded real cash payouts of $5,000, $1,000 and $250.

"Policy uncertainty has always been a source of external financial risk to institutions, but rarely with the crippling severity of the current climate," says founder and CEO Flip Pidot. "With no existing market for that risk, that massive unhedged exposure causes real harm to businesses, investors, employees, and the real economy, as projects are delayed, hiring is frozen, and reliable forecasting becomes farcical."

Once the exchange is authorized for regulated trading, investors will be able to hedge their financial exposure to changes in public policy, but not to election outcomes. Pidot says there is economic value to a robust prediction market for policy outcomes.

"If the market is a decent prediction machine, it will help collapse policy uncertainties, meaning affected institutions and individuals can make more informed decisions and avoid that political paralysis," he says.

That "wisdom of the masses" seems to be working. Last month, the exchange featured a "contract" on the duration of the government shutdown. According to Pidot, trading activity immediately and consistently predicted the shutdown would last between two weeks and a month, far longer than the early conventional wisdom suggested, and more than twice the historical average.

--Written by Hal M. Bundrick for MainStreet