MARKET OVERVIEW: Wall Street Is Learning to Trade the Event

For most of financial history, investors have actually traded the consequences of events. If you believe the Federal Reserve will cut interest rates, you might buy bonds. If you believe inflation, or PCE, might surprise to the upside, you might buy gold. If you believe a particular political party might win an election, you might buy a group of stocks that could benefit based on that party's typical leanings.

What prediction markets have done is change that sequence of events. Instead of trading only the consequences of an event and what it might do to an underlying or related market, they allow an investor to actually trade the event itself. Do I believe the Federal Reserve is going to cut rates at its next meeting? I can trade that. Do I believe inflation is going to finish above 3% at the end of the year? I can trade that. Which party is going to control Congress after the next midterm election? Will the next jobs report be good or bad? Will it beat expectations?

The concept is pretty simple. What is changing is the scale at which this is being implemented. In late July, Robinhood reported that more than 3.5 billion event contracts had been traded through its Prediction Markets Hub, while also launching Rothera, a CFTC-licensed exchange and clearinghouse independently managed through its joint venture with Susquehanna. On August 13, Apex Fintech Solutions announced an infrastructure partnership with Kalshi that allows brokerage firms to offer prediction markets without having to build an entirely new futures infrastructure. Then, on August 19, Cantor Fitzgerald opened institutional access to block trading in prediction markets through Kalshi. That is another indication that something once treated as kind of a novelty around elections and election outcomes is starting to attract significant traditional financial infrastructure and institutional capital.

So what happens when this probability - this bet on probability - becomes an investable market? 

Prediction Markets May Be More Important as Information Than Investments

Financial markets have always been prediction markets. That's what goes into the idea of investing in a stock. I buy Apple not because of how much money it made last quarter. I buy Apple because of how much money I think it is going to make next quarter, the following quarter, and next year. Every Treasury yield reflects expectations about inflation, economic growth, and Fed policy. Every option we look at incorporates assumptions about the future of an underlying asset.

What these prediction markets are doing is simply removing a layer. Instead of asking, what's going to happen to the Treasury market - to the bond market - if the Fed cuts rates or raises rates? Now, instead, you can trade the question: Will the Fed cut rates? And the market will give you a price.

For example, if a Yes contract pays $1 at settlement and trades around 63 cents, the market is effectively giving something close to a 63% implied probability to that outcome. Of course, this is subject to liquidity, positioning, transaction costs, and the construction of the contract itself.

Doesn't this sound like the options market? We've spent decades as options traders translating future uncertainty into a price today. What prediction markets are doing is applying the same concept - the same thing we've been doing as options traders - not just to the price of a stock or a commodity, but now to an event.

When Conviction Has a Price

There's an important distinction between a poll and a market. A poll, whether it's done online or over the phone, asks questions about something and people give opinions. A market asks the same questions, but it also says: Are you willing to put money on that? Are you willing to risk capital?

Now, that doesn't suddenly make the market correct. There can be emotion. Markets can become overcrowded. They can be illiquid on the other side and, in some cases, spectacularly wrong. We see this in the stock market every day.

But requiring someone to put capital behind an opinion changes the validity of that information. People with a weak conviction can answer a survey. People with strong information and strong conviction have an incentive to trade when they believe the market price is wrong, because they can be rewarded for being right.

And this pricing of uncertainty is what I believe is the best part about these prediction markets: I can put a price on uncertainty.

Direct Events, Not Proxies

Travis McGhee, Global Head of Digital Markets at Apex Fintech Solutions, summarized the attraction to these markets particularly well when Apex announced the Kalshi integration I talked about before.

That sentence really gets to the heart of the development of these markets. We have financial markets filled with proxies. You might trade oil because of what's going on with Iran and Israel. You might trade Treasuries because of what Treasury Secretary Bessent is doing, or what Fed Chair Warsh is doing on a policy view. You might trade a basket of stocks because you think, at the upcoming midterm elections, a particular party might come into power or maintain power. You might be a volatility trader because you trade swings in emotions of the market.

You might predict a Fed move correctly, but maybe the bond market doesn't react like you thought it would. You might predict the outcome of an election, but maybe the new party isn't as pro-energy as you thought it would be, and the energy sector suffers.

The prediction market separates those two distinctions. It allows me to express a view on the event itself rather than having to forecast both the event and the market's reaction to it. And that distinction, I believe, can give me another piece of data.

Again, prediction markets aren't new, right? This is sports betting. Sports betting has been around for decades - eons. What's different now is the infrastructure surrounding these markets. As I mentioned before, what the CFTC is doing, what Apex has recently done, and what Cantor Fitzgerald has done matters because, as markets evolve and new markets develop, they're not important just because they exist. The investor has to have confidence around things like liquidity, distribution, regulation, infrastructure, and the ability to get in and out of trades.

We saw that when options were listed in the 1970s and subsequently became an online tool in the late 1990s and early 2000s. We saw it in ETFs in the 2000s and their broader adoption. We saw it again in cryptocurrency after Bitcoin was launched. Prediction markets are on the same path.

The Information May Be the Product

To me, the question of whether this is a den of degenerate gamblers and another version of the casino moved online, or whether this is a legitimate market, is the wrong question. Yes, there will be degenerate gamblers. But for me the better question is: Can this market produce useful information for me? Because I believe the real product may be the actual probability that's being created.

Imagine opening your trading platform or CNBC one morning on a Fed day, with the Fed announcing its rate decision. Alongside Treasury yields, Fed funds futures, the VIX, and the S&P 500, you also now see the probability of a 25-basis-point rate cut listed at 71%, as an example. Ten minutes later, core PCE is released. Treasury yields move, stocks move, and the probability falls immediately from 71% to 54%.

Even if you never actually trade the prediction markets, that change in probability can be a useful source of information. And that's just around a Fed event. You could extend this to inflation, GDP, corporate earnings, employment, elections, and government policy.

Suddenly, prediction markets begin to look less like an actual standalone trading product - again, this degenerate casino - and more like information sitting on top of financial markets. And I believe that could be the biggest outcome and the most important outcome of these prediction markets.

I can get information and pricing from a Bloomberg terminal. Options markets give me implied volatility. Bond markets give me information about interest rates and inflation expectations. Prediction markets can give me something maybe more aligned to real-time implied probability for an event that matters to the financial market.

The Bigger Picture

Why should I look at this? How should I trade it? Or should I trade it at all? Maybe that's the wrong question.

The wrong question may be: Should I actually trade prediction markets? The better question might be: What information does this tell me that I didn't have before?

They could certainly become another casino. Yes. But underneath those headlines about elections and sports is a much more consequential idea: What price is the market putting on the future of an event?

It doesn't mean the markets will be perfect. But it means that uncertainty about the future now has a price. And I have found, as a market participant for the last 30 years, that when I have a price, it helps me make a decision.

Sources: Robinhood Q2 2026 Results (July 29, 2026); Apex Fintech Solutions/Kalshi announcement (August 13, 2026); Cantor Fitzgerald institutional prediction markets announcement (August 19, 2026).