Robinhood Enters Prediction Markets

Robinhood announced on Monday its new feature allowing users to trade contracts predicting the outcome of the upcoming U.S. presidential election, marking its latest entry into the realm of prediction markets.

The platform's offering lets users potentially profit by accurately predicting election results. For this initial phase, election contracts will be available to a limited pool of U.S. citizens who hold active Robinhood individual investment accounts. These users must also meet specific requirements, such as approval for margin investing or Level 2/3 options trading.

Through the election contracts, users can wager on the results of the 2024 presidential race. To place a bet, users select a candidate and purchase "Yes" contracts, effectively betting on that candidate's victory. Each contract can be valued up to $1.00, fluctuating based on demand. The final value settles at $1.00 for the correct predictions and $0.00 for incorrect ones, with payouts occurring on January 8, 2025, after Congress certifies the results on January 6.

To close a position, users buy an equivalent "No" contract to offset their "Yes" bet, allowing risk management or profit locking. Robinhood prohibits holding simultaneous "Yes" bets on multiple candidates.

Surge of Interest in Political Prediction Markets

Robinhood's announcement follows a favorable ruling for the prediction market platform Kalshi, which recently gained the right to list election outcome contracts after a court ruling against the Commodity Futures Trading Commission (CFTC). The CFTC had sought to block Kalshi's election contracts, citing regulatory oversight needs to prevent misuse.

Despite CFTC's ongoing appeal, other platforms, including Interactive Brokers, have started offering political event contracts, indicating an increasing demand for these speculative tools.

Kalshi CEO Tarek Mansour noted to CNBC, "We’re now number one on the finance App Store and have surpassed Facebook and Uber in global rankings… we aim to be number one across the entire app store by election day."

Regarding betting patterns, Mansour observed that average bets on Kamala Harris are marginally higher than those on Donald Trump, though Trump's more popular overall. "The average bet on our platform is around $300 to $400, but some users are wagering millions," he remarked.

When comparing Robinhood's event contracts to Kalshi, Mansour noted, "Kalshi offers nearly a hundred contracts with significantly higher liquidity. On Robinhood, placing around $10,000 can affect price, but on Kalshi, millions can be bet without significant market impact."

Prediction markets permit traders to buy and sell contracts on the outcomes of future events such as elections and economic changes. Typically high-risk, these markets are gaining popularity as investors seek novel methods for diversification and engagement with real-time events.

Platforms like Polymarket and PredictIt offer U.S. presidential election predictions and shares across various political and economic events. Polymarket’s contracts are priced between $0.00 and $1.00 USDC, indicating the probability of different outcomes, while PredictIt provides a similar pricing model for political event shares.