Latest news with #Kalshi
Yahoo
3 days ago
- Business
- Yahoo
Robinhood's Sports Prediction Markets Are a Hook for Wider Play
As Robinhood has expanded its sports prediction markets, adding Indy 500 and French Open event swaps to its arsenal this month, the U.S. gambling industry establishment has remained on alert. Robinhood has more than 20 million monthly active users across its full suite of financial products, and CEO Vlad Tenev has frequently talked up the new sports prediction market endeavor. Tenev told analysts on April 30 the company had facilitated about 500,000 sports-related transactions. More from ESPN Bet Faces Make-or-Break Year for $2 Billion Disney-Penn Deal Sports Prediction Market Regulator Exits With Agency in Flux DraftKings the Exception to Sports SPACs' Dire Track Record Chris Grove, partner emeritus at Eilers & Krejcik Gaming, called the company 'a credible threat to the sports betting status quo' in a recent email to Sportico, citing its size and technology chops. But the fine details of Robinhood's dealings, some of which have not been publicly reported, underline how a financial technology company better known for stock market trading sees sports as a gateway for users to adopt other products. 'It's not just about the trading of these events, it is about the engagement that it [generates],' JB Mackenzie, VP of Futures and International, said in a video interview. 'When you create a product that has intrigue, such as sports prediction markets, it allows users the opportunity to then look at other asset classes that they may be interested in. What we've seen is that is exactly what occurs … they'll look at a sports event contract, but then also they look at crypto, they'll also look at equities or options trading.' That is a different mission from sportsbook operators such as DraftKings and FanDuel, which are nonetheless closely monitoring the rise of sports event futures because of their growing popularity and resemblance to traditional betting. DraftKings and FanDuel have not expressed interest in user acquisition for the sake of providing people with other asset management services. To the extent they are using sports wagering to drive users to another product, the destination sportsbooks have in mind is the revenue bonanza of mobile casinos in states that have legalized iGaming. Robinhood's strategy also contrasts its partner Kalshi, which owns the exchange underpinning Robinhood's in-app event futures trading capabilities. Kalshi's entire business rides on the ability to scale prediction markets. Robinhood's does not. In fact, Robinhood is lowering its revenue ceiling for prediction markets, seeking instead to reduce risk by using a third-party exchange rather than buying or building its own. Robinhood does not directly pay Kalshi for the right to host its exchange, Mackenzie said, and it only earns revenue from sports markets by charging $0.01 per dollar traded. Kalshi tacks on additional user fees in a separate process. Mackenzie said Robinhood made a cost-focused choice not to create or acquire its own exchange. purchased North American Derivatives Exchange Inc. in 2022 and now offers sports event futures there. 'Acquiring an exchange is a very difficult process, to be perfectly blunt,' Mackenzie said. 'There's probably less than six that are out there. So, acquiring one is probably a much bigger decision, and it usually involves a lot of different products outside of just prediction markets.' Robinhood's tie-up with Kalshi is non-exclusive, meaning it does not provide an inherent competitive edge over other financial technology companies that offer investments in varied asset classes. As previously reported by Sportico, Robinhood also takes a slightly different approach toward regulators than Kalshi, albeit one that is still far more aggressive than DraftKings and FanDuel. Kalshi remains live in all 50 states despite fierce legal challenges, but Robinhood is not offering sports contracts in Maryland, Nevada or New Jersey, a company spokesperson said Tuesday. The three states have issued cease-and-desist orders asking unregistered sports prediction markets to shut down, alleging they are illegally offering a gambling service. Robinhood and Kalshi have denied wrongdoing, claiming in court that sports futures are distinct from gambling and that the federal Commodity Futures Trading Commission (CFTC) holds exclusive oversight authority. The issue could eventually make it to the Supreme Court due to the clash of state and federal power. Because it is a trading broker that does not own a prediction market exchange, Robinhood faces fewer potential regulatory actions from the CFTC. The sparsely staffed federal agency that oversees futures trading has recently embraced a hands-off approach to the entire sector, adding to a sense that Robinhood's prediction markets will not face a blanket ban anytime soon. Also, Robinhood was one of the biggest corporate donors to President Donald Trump's inauguration committee, giving $2 million. Kalshi is well-connected with the Trump administration, too, adding Trump's son Donald as an advisor and seeing board member Brian Quintenz nominated to lead the CFTC. Quintenz said this week in a letter to the CFTC that he will step down from Kalshi's board when approved as chairman. If Quintenz is confirmed, he will enter an agency with all four other agency spots unfilled because of recent resignations. This will kneecap the CFTC's regulatory capabilities to monitor companies like Robinhood, departing commissioner Christy Goldsmith Romero said at a Brookings Institution conference Tuesday. 'I think it's difficult if there's one person deciding on what the rules should be,' Romero said. 'It does a disservice to regulation.' Beyond regulatory concerns, whether Robinhood hurts the gambling industry's longstanding business forces remains to be seen. A couple of months ago, executives at several prominent sportsbook operators viewed prediction markets as a possible existential threat, and a spokesperson for the American Gaming Association said in an email Tuesday that the trade group remains concerned. Tribal groups in places such as California, where sports betting is banned or limited outside of Native American operations, remain staunchly against the rise of sports prediction markets. But corporate sports betting operators could have a change of heart. Sporttrade, for example, is requesting the CFTC agree not to take action against it if it lists nationwide futures contracts like Kalshi. Sporttrade is a hybrid case—a prediction market hub that has until now been exclusively overseen by state gaming regulators and officially licensed in Arizona, Colorado, Iowa, New Jersey and Virginia. Meanwhile, DraftKings CEO Jason Robins and Flutter CEO Peter Jackson have gone on record to suggest they could introduce their own futures trading platforms once regulatory questions are resolved. Until then, Robinhood and its fintech peers, which also offer political markets, can run up the score, each with ultimate objectives tailored to their broader businesses. 'We love what we're seeing,' Tenev said on Robinhood's most recent earnings call, 'and it's so early that the potential of this is vast.' Best of Most Expensive Sports Memorabilia and Collectibles in History The 100 Most Valuable Sports Teams in the World NFL Private Equity Ownership Rules: PE Can Now Own Stakes in Teams
Bloomberg
3 days ago
- Business
- Bloomberg
Wall Street or Vegas: Kalshi Ramps Up Battle Over Legal Gambling
By During its short existence, Kalshi has taken a battering ram to the regulatory establishment in its bid to give Americans the inalienable right to bet on just about everything. The US election, Taylor Swift's next hit, volcanic eruptions, and even the Rotten Tomatoes score for "How to Train Your Dragon." Now, the seven-year old financial exchange is taking it to a whole new level by using its federal financial license to open up sports gambling nationwide, even in states where it is not legal.
Forbes
6 days ago
- Business
- Forbes
CFTC's Failure To Enforce ‘Gaming' Contract Ban Could Still Upend Kalshi Sports Betting Lawsuits
(Photo by Mario Hommes/DeFodi Images via Getty Images) By its own admission, Kalshi is offering a sports betting product – across all 50 states. Kalshi has repeatedly advertised its sports-event contracts on social media as 'The First Nationwide Legal Sports Betting Platform'; 'Betting on Kalshi, the first app for legal sports betting in all 50 states'; and 'Sports Betting Legal in all 50 States on Kalshi." (see here and here). Not only does the federal Wire Act criminalize that activity – as it constitutes the interstate transmission of bets or wagers through interstate commerce – but the CFTC's own regulation (Rule 40.11(a)(1)) prohibits the offering of event contracts involving or relating to 'gaming.' Rule 40.11(a)(1) imposes a blanket ban on all event contracts involving 'gaming,' 'war,' 'terrorism,' 'assassination,' and 'activity that is unlawful under State or Federal Law.' The inclusion of the italicized word 'Prohibition' at the outset of the Rule is a dead giveaway. As explained by acting CFTC Chair Caroline D. Pham: Incoming CFTC Chairman Brian Quintenz has likewise acknowledged that Rule 40.11(a)(1) imposes a 'blanket prohibition' on any event contract that involves or relates to 'gaming.' In a May 24, 2021 public appearance before the Federalist Society, then-Commissioner Quintenz was asked whether the CFTC 'is required to prevent the listing of a contract that's considered gambling.' Quintenz's response: 'the regulation we wrote requires us to.' Several months earlier, Commissioner Quintenz wrote that if an event contract 'is found to be an enumerated event contract, then it is subject to the per se prohibition in the regulation.' Or, as he bluntly put it, 'under Regulation 40.11, that means game over.' Kalshi has already conceded that its sports-event contracts involve 'gaming.' In a court document filed last year in its lawsuit with the CFTC, Kalshi asserted that 'the only relevant legislative history . . . confirms that contracts on 'sporting events such as the Super Bowl, the Kentucky Derby, and Masters Golf Tournament' were precisely what Congress had in mind as 'gaming' contracts.'' The 'gaming' category, Kalshi advised the court, 'reaches contracts contingent on games – for example, . . . whether a certain team will win the Super Bowl. It thus functions as a check on attempts to launder . . . sports gambling through the derivatives markets.' (Notably, Kalshi also asserted that 'Congress did not want sports betting conducted on derivatives markets,' adding that 'contracts relating to games have no inherent economic significane" and 'are unlikely to serve any 'commercial or hedging interest'' — a position which is fundamentally at odds with its current litigation posture). At the January 17, 2025 oral argument before the D.C. Circuit – which occurred just six days before it filed its self-certification for sports contracts with the CFTC – Kalshi reaffirmed that 'the legislative history is exclusively about sports when it talks about 'gaming,'' declaring that 'Congress was particularly concerned at the time it enacted this statute about sports betting and that was probably what they were getting at with the word 'gaming.'' (49:50-50:08). Tying Rule 40.11(a)(1) to the Preliminary Injunction Factors If Rule 40.11(a) categorically bans 'gaming' contracts and Kalshi's sports-event contracts fall within that prohibited category, then why isn't it 'game over' for Kalshi in the federal courts? Kalshi has attempted to evade this inquiry by confining its federal court lawsuits against Maryland, Nevada, and New Jersey to a single constitutional question – i.e., whether state sports betting laws are 'preempted' by the Commodity Exchange Act's grant of exclusive jurisdiction to the CFTC over all derivatives contracts traded on CFTC-designated exchanges. According to Kalshi, any inquiry over Rule 40.11(a)(1)'s applicability falls outside the scope of the constitutional question presented, and, in any event, 'reaffirms' the CFTC's exclusive jurisdiction over Kalshi's contracts because only the CFTC can enforce its own regulations. Contrary to Kalshi's assertion, Rule 40.11(a)(1) is relevant for several reasons. First, Kalshi itself has injected Rule 40.11(a)(1) into the lawsuits by alleging that its sports-event contracts are 'lawful under federal law.' Further, Kalshi's Head of Markets, Xavier Sottile, submitted a declaration in support of each one of Kalshi's motions for preliminary injunction attesting that Kalshi 'assiduously complied with federal regulations with regard to all of our contracts.' The unique procedural posture of the case also warrants a broader lens. Kalshi is asking the federal courts to grant it the extraordinary remedy of a preliminary injunction – which is essentially an early victory before there is even a trial. To obtain a preliminary injunction, Kalshi must demonstrate the following: (1) a likelihood of success on the merits; (2) a likelihood of suffering irreparable harm in the absence of preliminary relief; (3) that the balance of equities weighs in its favor; and (4) that injunctive relief is in the 'public interest.' In assessing these factors, the reviewing court can consider a broader range of documents and information, including matters outside the four corners of the complaint. The Fourth Circuit (which covers the Maryland federal courts) has stated that a court ruling on a preliminary injunction motion 'may look to, and indeed in appropriate circumstances rely on, hearsay or other inadmissible evidence when deciding whether a preliminary injunction is warranted.' It does not require much ingenuity to tie Rule 40.11(a)(1) to the various preliminary injunction factors. It's pretty straightforward. The one that immediately jumps out is the 'public interest' prong which is so central to the granting of preliminary injunctive relief. Failure to Enforce Rule 40.11(a)(1) is Contrary to the Public Interest Kalshi may have raised the specter of Rule 40(a)(1) – yet again – in its motion papers filed in the Maryland case. At page 19 of its motion for preliminary injunction, Kalshi contends that the 'public interest' prong of the preliminary injunction standard favors Kalshi because 'the public undoubtedly has an interest in seeing its governmental institutions follow the law.' Ironically, the 'governmental institutions' that Kalshi was calling out with that statement were the Maryland state agencies for not recognizing the preemptive effect of federal law. What an unforced error. If there is any government institution which 'failed to follow the law,' it would be the CFTC, which failed to enforce its own regulation – Rule 40.11(a)(1). As noted above, Rule 40.11(a)(1) prohibits event contracts that involve, relate to or reference 'gaming.' With Kalshi already on record as equating sports-event contracts with 'gaming,' the CFTC was compelled by its own regulation to order Kalshi to discontinue the listing or trading of its sports-event contracts. After all, the CFTC has already determined – through formal rulemaking unanimously approved more than a decade ago – that event contracts involving or 'relating to' gaming are automatically 'contrary to the public interest' without any further public interest review. There is no discretion or wiggle room afforded to the CFTC under Rule 40.11(a)(1). It's a per se prohibition, as acknowledged by both Commissioners Pham and Quintenz. While Kalshi (and others) have argued that Rule 40.11 gives the CFTC the discretion to apply an individualized 'public interest' test to proposed event contracts on a 'case-by-case' basis, the plain language of the Rule squarely refutes that. To that point, Acting Chairman Pham declared in 2022 that 'there is no further public interest test in Rule 40.11(a)(1) . . . . The Commission has no discretion to infer an additional case-by-case public interest test under Rule 40.11(a)(1) because the plain meaning of . . . the rule text is clear and unambiguous.' In other words, it's 'game over' (to use Quintenz's football analogy). I would think that's a pretty pertinent consideration on a motion for a preliminary injunction analysis, which requires consideration of the 'public interest.' Here, the public interest would clearly be disserved by the CFTC's failure to enforce Rule 40.11(a)(1). As several Maryland federal district courts have recognized, 'there is a substantial public interest 'in having governmental agencies abide by the federal laws that govern their existence and operations.'' And the 'public interest' points only one way – at least until Rule 40.11(a)(1) is amended or withdrawn. Until such time, Kalshi's sports-event contracts are barred by Rule 40.11(a)(1). So, if, as Kalshi insists in its motion, there is a strong 'public interest' in ensuring that governmental institutions 'follow the law,' one would expect the State of Maryland (and Judge Abelson) to take note of the CFTC's abject failure to enforce Rule 40.11(a)(1). In doing so, the Court is not being asked to 'enforce' Rule 40.11(a)(1) against the CFTC (as Kalshi argues in its reply brief). Rather, the Court is simply being asked to consider the CFTC's failure to enforce Rule 40.11(a)(1) in the context of Kalshi's motion for preliminary injunction, with an eye towards examining whether granting an injunction to Kalshi would serve the public interest where its sports contracts are barred both by a federal statute (the Wire Act) and by a clear and unambiguous agency rule which the CFTC refuses to enforce. That's well within the Court's purview on a motion for preliminary injunction. Irreparable Harm Negated by Contract Illegality Along the same lines, the illegality of sports-event contracts under both the Wire Act and Rule 40.11(a)(1) undercuts Kalshi's claim of 'irreparable harm' – another prong of the preliminary injunction inquiry. There cannot be any standing to sue – much less 'irreparable harm' – if Kalshi's contracts are not 'lawful.' (Kalshi has alleged that its contracts are 'lawful under federal law' and submitted a declaration attesting to its 'compliance with' CFTC regulations – placing the lawfulness of its contracts under federal law squarely at issue in this litigation). Here, any irreparable harm that Kalshi may have suffered is entirely of its own making. It self-certified its sports-event contracts as being 'in compliance' with CFTC regulations at a time when such contracts were barred by a specific CFTC regulation and just two weeks after was ordered by the CFTC to suspend the listing of its sports contracts pursuant to the same regulation. Instead of seeking preclearance from the CFTC (as it could have done), Kalshi plunged full speed ahead despite its prior acknowledgement in the CFTC case that sports-event contracts involved 'gaming' (or, more specifically, sports betting), have 'no inherent economic significance,' are 'unlikely to serve any 'commercial or hedging interest,'' and conceding that 'Congress did not want sports betting conducted on derivatives markets.' Federal courts have rejected claims of irreparable harm based on the illegality of the underlying contract, characterizing the moving party's quandary as 'a bed largely of its own making' and calling the request for injunctive relief in such circumstances 'ill-suited.' False certification to the CFTC constitutes 'unclean hands' Another way to weave Rule 40.11(a)(1) into the preliminary injunction proceedings is through an 'unclean hands' defense. The doctrine of 'unclean hands' bars equitable relief 'when the party seeking relief is guilty of fraud, unconscionable conduct, or bad faith directly related to the matter at issue that injures the other party and affects the balance of equities.' It all ties back to Kalshi's January 23rd self-certification regarding its initial listing of a sports-related event contract. On page 4 of that document, Kalshi made an affirmative representation that its proposed sports-related event contract 'complies with' the CFTC Regulations. CFTC Regulation 40.11(a)(1) places a blanket prohibition on any event contract that 'involves, relates to, or references' any of the following: 'terrorism, 'assassination,' 'war,' 'gaming,' or an 'activity that is unlawful under any State or Federal law.' In other words, event contracts relating to 'gaming' are per se prohibited under Rule 40.11(a)(1). As a frequent applicant before the CFTC (going all the way back to 2020), Kalshi should be well aware of this Rule, especially since it's prominently displayed on the CFTC's website and Commissioner (and now acting CFTC chair) Caroline D. Pham specifically referred to Rule 40.11 (a)(1)'s blanket prohibition in public statements about Kalshi's prior event contracts. In a letter dated April 1, 2025, U.S. Congress member Dina Titus asked the CFTC to 'consider whether Kalshi made false claims in its self-certification,' in light of Kalshi's prior judicial statements to the effect that sports-based event contracts 'would qualify as prohibited activities under the Commodity Exchange Act and applicable federal regulations.' As a remedy for the alleged 'false statement,' Congresswoman Titus has asked the CFTC 'to stay the trading of [Kalshi's] sports event contracts' while it investigates the matter. States can likewise weaponize the allegedly false statements made in Kalshi's 'self-certification' by arguing to the federal courts that Kalshi is not entitled to a preliminary injunction because it comes to a court of equity with 'unclean hands.' Here, a state could argue that Kalshi has 'unclean hands' (and therefore is ineligible for a preliminary injunction) because it misrepresented to the CFTC that its sports-related event contracts comply with CFTC Regulations, with full knowledge that CFTC Rule 40.11(a)(1) prohibits event contracts relating to 'gaming' and after having previously asserted in prior judicial proceedings that the 'gaming' category includes sports-based event contracts (like the ones at issue here). Further, the alleged misrepresentation concerning sports-related event contracts is directly related to the matter at issue since it involves the same subject. As you can see, the CFTC's non-enforcement of Rule 40.11(a)(1) is far from a non-issue. It bears directly on three out of the four elements of a preliminary injunction – including a 'balancing of the equities' – and should enthusiastically be invoked by states faced with such an extraordinary remedy. Two of the most compelling story lines in the entire Kalshi saga are: (1) Kalshi's complete 180 on the legality of sports-event contracts (as compared with its prior position advanced in the CFTC litigation – I can't recall ever seeing a litigant change its story so dramatically in such a short period of time); and (2) the CFTC's failure to enforce its own regulation. These are winning themes that states should be hammering in their court filings.
Yahoo
7 days ago
- Business
- Yahoo
Betting trends suggest grim political changes for Trump and MAGA in 2028
If betting trends on the Kalshi prediction website are any indication, the U.S. could be in for a significant political shift. And if the gamblers are right, it's bad news for President Donald Trump and his MAGA supporters. The Kalshi site has long shown that bettors believe that the Democrats will retake control of the House of Representatives in 2026. Now, 27% of gamblers on the site are betting that Democrats will win the House, Senate and the White House in 2028. The site shows 23% of wagerers betting that the Democrats will take the House while the GOP maintains control of the presidency and the Senate. Kalshi shows that 22% of bettors are gambling that the Dems win control of the presidency and the House, which would be another huge blow to MAGA. Just 15% of those wagering on the Kalshi site are betting that there will be a GOP sweep of the White House, the Senate and the House of Representatives in 2028. The Kalshi site gives the GOP a slim chance of holding control of the House in 2028. A Democratic sweep of all three levels of government could allow the party to undo Trump's second-term initiatives. A loss of the presidency by the GOP would also be a blow to Trump's MAGA legacy. An overseas gambling site is also now showing a nightmare scenario for Trump and his MAGA followers. On the U.K.-based Smarkets site, 51.55% of gamblers are betting that the Democrats will win the presidency in 2028. The Democrats' chances of taking the presidency have steadily increased over the last two months. This, even though other action on the site shows that 22.22% of gamblers think GOP Vice President JD Vance will win the 2028 presidential election. That far outpaces the 5.88% of those betting that Democratic Rep. Alexandria Ocasio-Cortez will be the next president. The Smarkets site also shows that 86.96% of bettors are wagering that the House will fall into Democratic hands in 2026. That would be grim news for Trump, especially since the House is where impeachment proceedings begin. A Democrat-controlled House impeached the president twice during his first term. A Democratic House could also stymie Trump's agenda. In January, Kalshi announced that the president's son, Donald Trump Jr., would join the company as a strategic advisor, according to Fortune. The company is also working with Elon Musk's artificial-intelligence firm, xAI, 'to provide tailored information to offer guidance for bets made by the site's users,' Yahoo! Finance reported last week. Mass. Rep. Trahan's 'Les Miz' moment on Trump's 'Big Beautiful Bill' | Bay State Briefing Latest Trump attack on Harvard is 'most serious' yet, former school president and Harvard critic says Trump uses 'personal time' to meet with mysterious crypto investors Got 'Trump Derangement Syndrome?' GOP lawmakers want the NIH to study an 'epidemic on the left' Trump threatens Apple with 25% tariff if it doesn't make iPhones in the US Read the original article on MassLive.
Yahoo
23-05-2025
- Business
- Yahoo
How young traders are getting rich betting on things like Rotten Tomatoes scores and the pope
Catholicism warns against gambling addiction. But that didn't stop traders on Kalshi from wagering over $10 million on the answer to 'Who will the next pope be?' Kalshi, along with other prediction-market platforms like Polymarket and ForecastEx by Interactive Brokers IBKR, allows traders to bet on seemingly just about anything — from egg prices to interest rates to the U.S. presidential election. And while it's easy to scoff at some of the more outlandish prediction markets — like 'Will Luigi Mangione plead guilty to murder?' — critics may be glossing over something important. My daughter's boyfriend, a guest in my home, offered to powerwash part of my house — then demanded money After 25 years, I finally asked for separate checks — and my friends iced me out. Did I do something terrible? This hedge-fund manager has made about 50% in each of the last two years. Here's his home run trade. My husband used my money to renovate his house. Will I now get half of his property in a divorce? My ex-wife said she should have been compensated for working part time during our marriage. Do I owe her? Although these markets are relatively new, they already are reaching a broad audience and have become quite complex. And just like more traditional financial markets, traders have developed sophisticated arbitrage and market-making strategies to clear hefty sums of cash. Coby Shpilberg is a 21-year-old who lives in Palo Alto, Calif. With a background in data analytics, he works as the chief technical officer at Adnexi, a clinical-trial startup he co-founded with his mom. At work, Shpilberg uses data science to identify people to participate in clinical trials. Outside of work, he uses that same expertise to trade on Kalshi. Shpilberg has been trading on Kalshi for about a year. At first, he tried his luck trading markets that revolve around Rotten Tomatoes scores for recent and upcoming movies. He noticed that movie critics would release their reviews, which would then get uploaded to Rotten Tomatoes in batches, thus affecting a movie's score. Shpilberg had a theory that if he built an algorithm that scraped the Rotten Tomatoes website for updates, he'd be able to trade those markets faster than others and thus gain an edge. He tried it but ended up losing money. Next, Shpilberg had a theory that he could do something similar with the weather markets on Kalshi, using data to predict the temperatures in New York City better than anyone else. Again, he didn't make any money. In his first six months trading on Kalshi, Shpilberg was down a couple hundred dollars. Then, around the election, things started to change. 'What I was trying to do was essentially arbitrage. I had information where I thought I was quicker than everyone else. So I thought I could buy stuff better. Didn't turn out to be true,' Shpilberg told MarketWatch. 'But then my mindset switched to do market-making.' And that's when Shpilberg found his edge. Market makers exist in all types of financial markets, trading things like equities, derivatives and more. In equity markets, the way market-making works is that a market participant, usually a large financial institution, will execute very large volumes of stock orders both on and off exchanges. Market makers are willing to take the opposite side of anyone who wants to trade, making profits by setting their price parameters to ensure they collect a 'spread' — which is the small difference between the price a seller is asking for (the 'ask') and what a buyer is willing to pay (the 'bid'). This difference may be just a few cents or fractions of a cent per stock, but because market makers handle so much volume, they can turn a sizable profit. For example, the market makers Citadel Securities and Virtu together handled more volume in December 2020 than the entire New York Stock Exchange. Last March, Citadel Securities reported $9.7 billion in trading revenue for the past year. Kalshi's contracts are binary, meaning each contract has two sides. There's a 'yes' side that pays out $1 per contract if a certain outcome happens, and a 'no' side that pays out $1 per contract if the outcome doesn't happen. The cost to buy one side of the contract reflects the anticipated likelihood of that event happening, so a 'yes' contract that costs $0.60 represents a 60% probability and pays out a net $0.40 if the outcome occurs. In order to make markets on Kalshi, Shpilberg has resting orders on both sides of the book, and he sets his buy and sell prices wide enough to collect a profitable spread. With this setup, he's willing to sell contracts to anyone buying and buy from anyone selling, as long as they meet his prices. The individual spreads may seem relatively small, but because market-making is a numbers game, Shpilberg is able to profit by executing a large volume of orders. 'That was the real unlock and where I started to become profitable,' Shpilberg said. Although Shpilberg's strategy isn't exactly the same as the market-making done by institutions in other financial markets — where there are strict rules about what institutions can and can't do — it's similar in the sense that the strategy provides liquidity on both sides of a trade and the goal is to collect a spread while remaining position-neutral. Kalshi has an official market-making program for institutions and other entities that want to make markets on its platform. Financial firm Susquehanna International Group is one of the institutions that participates in this program. Kalshi requires the official market makers in this program to meet certain requirements, undergo auditing and take certain positions to ensure market smoothness and integrity, according to a company spokesperson. The company said that individual traders are not part of this official program and therefore their strategy is not market-making in the official sense. But this also gives those individuals more flexibility in how they trade. Shpilberg built an algorithm using the Kalshi trading application programming interface, or API, and ChatGPT. This algorithm looks over all the new markets on Kalshi, then checks each market for a list of characteristics that Shpilberg has personally identified. These characteristics tell Shpilberg and his algorithm that the specific market is good for market-making and more likely to be profitable. Once identified, the algorithm sends a notification to Shpilberg through a private Discord server, telling him what to buy. After putting hours into building his algorithm and debugging it, Shpilberg got the process mostly automated and now spends less than an hour per week actually trading on the Kalshi platform. In just a few months, Shpilberg was able to wipe out his negative profit-and-loss balance and make over $165,000. Market-making on platforms like Kalshi doesn't always work. Since traders take positions on both sides of a trade, there's a risk of holding the wrong side of the trade at a bad price if the market shifts too rapidly in the other direction. For example, if they are selling 'yes' contracts and collecting a $0.02 spread, their entire volume could get picked off if the market thinks that 'yes' outcome is much more likely than the market maker has priced. This means that the traders who are market-making on Kalshi have to be strict about the parameters surrounding what markets they trade in and how much volume they're willing to handle. '[Kalshi] is a really cool playground to flex these skills and learn how to take advantage of financial markets, and create a little bit of edge,' Shpilberg said. 'I really believe it's going to create a whole new generation of market makers and introduce, with a very low barrier to entry, automated trading to a whole new generation of people.' Shpilberg said that he once made a post about market-making on Kalshi on his private Snapchat story, and one of his friends responded saying he was market-making on Kalshi, too. In spring 2023, a group of undergrads at the University of Southern California created a Kalshi market-making algorithm as part of a school assignment. The algorithm ran probability simulations on the daily close of the S&P 500 SPX and entered positions in Kalshi's S&P 500 prediction market that allowed the traders to profit off of a spread. In their test, the students 'achieved a $6.80 profit on a $33.40 initial investment' according to their GitHub page. Jack, a senior at Princeton University who asked MarketWatch not to disclose his last name, has made about $150,000 as a market maker on Kalshi since he started using the platform around the time of the 2024 election. 'I think that there's a clear space for retailesque market makers, which is kind of unique,' he said in an interview with MarketWatch. Market-making is far from the only strategy that traders on Kalshi use to seek gains. 'Personally I do see it as a form of investing or day trading. There are also definitely arbitrage opportunities to be found if you know where to look,' Hunter Foschini, a 23-year-old who works in sales, told MarketWatch. 'I actively look for profitable opportunities daily, and I find them pretty often.' Foschini said his trading strategy consists of doing 'deep research' in order to find information to trade on. He also developed his own models and algorithmic trading strategies, which he said has helped give him an edge. While he didn't disclose how much he's made with his strategies, he said he's profitable overall. 'I also know or have spoken with numerous traders who use prediction markets to make a living, and some of them have crossed seven figures in profit,' Foschini said. Prediction markets, in their current form, are still a somewhat recent development. But these markets have been evolving and will continue to evolve. As that happens, they may begin to resemble other once-new markets, like the options market or other derivative markets. 'I think that if this trajectory of success continues, more and more money comes into the markets. And I think that this means betting markets will become more and more efficient,' Davide Accomazzo, an adjunct professor of finance at Pepperdine Graziadio Business School, told MarketWatch. More money in prediction markets means more liquidity, more efficiency and more accurate pricing. Coincidentally, that may mean less opportunity for arbitraging to take advantage of market inefficiency. Accomazzo made the comparison to the S&P 500 SPX, which sees large volumes of trading and is able to price in news very quickly. As a result, it's very hard for professional traders to beat the index. But that doesn't mean traders will stop looking for ways to gain an edge. 'People, for some reason, will always look for ways of gambling,' Accomazzo said. 'Is this a good tax strategy or a sham transaction?' My mother wants to give me her home. I have a plan to avoid taxes. My husband and I spend more money on our daughter and her family than on my single son. Do we compensate him? Is now a good time to buy an iPhone? A 5-star fund manager is capitalizing on Trump's global market shake-up. Here's how. Morgan Stanley turns bullish on U.S. stocks. Here's why it says the market lows have already been made. Sign in to access your portfolio
