Prediction markets, which allow users to trade contracts on the future outcome of everything from politics to weather, are seemingly popping up everywhere.
This week one of the most popular platforms, Kalshi, signed partnership deals with TV news channels CNN and CNBC to incorporate probability data into news coverage starting next year. Another, Polymarket, recently announced integrations with Bloomberg and financial services company Intercontinental Exchange, the latter of which made a $2 billion investment. And earlier this year, Robinhood
Kalshi
The upshot for advisors: Many clients may soon be encountering these platforms, if they haven’t already. Experts say it’s important to frame using these speculative instruments in the proper context so they don’t undermine a carefully thought-out financial plan.
What to tell clients about prediction markets
In his work, Braden Perry, partner at law firm Kennyhertz Perry in Mission Woods, Kansas, advises clients on derivatives, emerging financial products and regulatory risk. (The “event contracts” offered by prediction markets are considered a type of derivative.) He said he has seen increasing interest in event-based contracts on platforms like Kalshi.
“Most clients approach these markets out of curiosity rather than as a core investment strategy, and I typically see very small dollar amounts,” he said. “Their experiences tend to mirror retail options trading: some early wins that feel exciting, followed by the realization that these markets require discipline, probability-based thinking and an understanding of the underlying mechanics.”
How prediction markets could evolve
Kalshi co-founder and CEO Tarek Mansour raised eyebrows this week
That raises broader questions, Perry said.
“On one hand, markets can improve forecasting by aggregating information,” he said. “On the other hand, turning every disagreement into a tradeable position can create unhealthy incentives, especially around political or socially sensitive events. The regulatory framework matters and exchanges must balance innovation with safeguards that prevent these products from drifting into gamification.”
Pay attention to the signals from prediction markets
Kaledora Kiernan-Linn, co-founder and CEO of self-custodial leveraged trading platform Ostium, said the real power of prediction markets isn’t the ability to trade on the events themselves, but rather the probability data they generate.
“It allows traders to use event probabilities the same way they use prices in traditional limit orders,” she said. “Instead of saying, ‘Trade if the price hits X,’ you could say, ‘Trade if the probability of this event hits X.’
