Prediction market platforms like Kalshi are making a big push to attract top institutional investors and hedge funds, a move that could ripple through traditional finance.
Such markets have exploded in popularity among retail traders over the past year and are now turning their attention to deep-pocketed financial institutions.
"Hedge funds need a more nuanced way to express their views in derivative markets they can’t access on traditional venues," said Asaf Meir, CEO of Solidus Labs, a trade surveillance partner for Kalshi.
Kalshi recently executed its first customized block trade and is actively targeting larger institutions, said Andy Ross, the firm’s head of institutional business.
Kalshi's annualized trading volumes have more than tripled over the past six months to $178 billion. Institutional trading volumes have grown 800% in that period.
Volumes are driven by large asset managers, hedge funds, and prime brokerages. They often buy contracts tied to monthly events like payroll data.
Some contracts exceed several million dollars, Ross said.
Still, Kalshi is in the early stages of attracting institutional investors and addressing liquidity concerns.
"We’re in the foothills of this, but we’re climbing pretty fast," Ross said.
Prediction markets are forging deals with prime brokers and liquidity providers. Clear Street recently partnered with Kalshi. Jump Trading has been working with asset managers and hedge funds.
Marex, a London-based broker, started working with Kalshi and Polymarket to build infrastructure. Polymarket declined to comment.
Quantitative platforms like AQR, Susquehanna, and OKX have advertised roles for prediction market traders.
"The ability to isolate a specific risk factor in real time is a key selling point," said Devin Ryan of Citizens JMP.
Analysts warn that prediction markets need to address liquidity to attract big firms. Large trades can overwhelm shallow order books.
"No hedge fund will route flow to a venue with less than $10 million daily notional volume," said Meir.
Edward Ridgely, CEO of Stand, said top markets on Polymarket have only about $30 million in liquidity, making large trades disruptive.
"We see individual traders, not institutions with large accounts," Ridgely said.
Kalshi is trying to address liquidity by bringing more institutions onto its platform.
"They are increasingly being treated as a legitimate alternative asset class," said Toni Gemayel of Coinbase.
