Kalshi Seeks CFTC Approval To Offer Margin Trading on Prediction Markets

Kalshi believes that margin trading will attract bigger players to prediction markets

Prediction markets have grown exponentially since they exploded onto the U.S. gaming market about two years ago. Still, as rapidly as that pace is advancing, operators of prediction market sites believe they are only scratching the surface of how big they could be. Kalshi believes that margin trading would be a significant step in pushing prediction market sites to become attractive to major investors.

The major players on Wall Street all make use of margin trading when operating in the stock market. It's also a popular method for trading on traditional derivatives and equities.

Currently, sports-event contracts are driving the most activity on prediction market sites. However, according to reporting by CNBC, major financial institutions find prediction markets relating to elections, weather incidents, macroeconomics, and commodities to be more attractive from an investing standpoint. But those institutions would want to make major plays on these markets. And to do so, they'll want the ability to access trading on margin.

Kalshi believes that the ability to allow prediction market trading on margin would make longer-dated prediction markets - events with expiration dates well in the future - more appealing to institutional traders.

“Those are tradable assets now that people can directly trade upon, as opposed to trading on a derivative of those,” Andy Ross, head of institutional at Kalshi, told CNBC. “So you’ve got better hedging.”

Here's how margin trading works

Margin trading would allow a trader to borrow money from the prediction market site to purchase more of an asset than the cash they put down. As previously noted, it's a very commonplace measure utilized in stock market trades.

Polymarket is also seeking the option to trade on margin

Kalshi is following the lead of Polymarket. In July, Kalshi's fiercest rival also applied to the CFTC for permission to offer margin trading on prediction markets.

Kalshi's filing was initiated through Kalshi Klear. That's the company's internal clearing house.

Margin trading would only be offered to self-clearing members, who have direct relationships with Kalshi Klear. They would be required to meet certain capital requirements for approval.

Kalshi already provides leverage on its perpetual futures contracts. The company accounts for approximately 90% of all prediction market activity in the U.S. market.