Kalshi

Founded in 2018, Kalshi was established by MIT alumni Tarek Mansour and Luana Lopes Lara.[1] The idea for the company emerged during their tenure as financial analysts, where they identified challenges faced by investors attempting to hedge their investments amidst uncertainties such as the Brexit referendum. The founders note that the absence of a direct safeguard against unfavorable outcomes was what prompted them to envision a platform that would allow investors to engage in wagers on future events, providing a means to hedge uncertainties and capitalize on insights.[2]

After attempting for 18 months, Mansour and Lara obtained a federal license from the Commodities Futures Trading Commission (CFTC) on 3 November 2020,[3] registering as a designated contract market and becoming the first federally regulated event-based trading exchange in the United States.[4][5] Kalshi's case was strengthened by the presence of several prediction markets that operated without seeking regulatory approval, such as Polymarket and Augur.[3] The name "Kalshi" signifies "everything" in Arabic, intended to reflect the platform's comprehensive approach to trading.[6][7]

Kalshi launched in July 2021 and processed $10 million in trades by December.[2] The platform has garnered support from prominent investors like billionaires Charles Schwab and Henry Kravis, who have contributed $40 million to the company. The company has also received backing from Sequoia Capital,[8] SV Angel, and Tinder co-founder Justin Mateen[9] and was a part of Y Combinator’s Winter 2019 batch.[6] Its board includes Alfred Lin.[10]

Since its launch, Kalshi has attracted millions of users. Numerous early adopters were avid followers of prediction markets, reportedly enticed away from similar platforms like PredictIt and Polymarket.[3] In November 2021, the exchange saw approximately 1 million contracts in weekly trading volume,[11] which grew to 2 million contracts per week in May 2022.[3] As of April 2023,[12] its monthly trading volume stands at around $10 million.[13]

In January 2023, Kalshi experienced a workforce reduction of approximately 25%, resulting from a combination of layoffs and voluntary resignations.[13]

As a trading exchange, Kalshi allows both retail and institutional traders to place trades on various future events, spanning topics like weather and climate change,[14][15] the Oscars,[16] tax changes,[17] inflation,[18] music festival cancellations,[19] album sales and digital streaming milestones,[20] Covid vaccine uptake,[1] recession likelihood,[21] and the potential for the United States to default on its debt by the year's end.[22] The platform also covers markets related to presidential approval rating, significant legislation passing Congress, and US Supreme Court cases.[14] However, Kalshi does not offer markets related to elections.[23] Co-founder Luana Lopes Lara stated that Kalshi focuses on events inspired by current headlines, as exemplified by the introduction of markets related to US Supreme Court cases in December 2021.[10]

Trading is based on opinions about specific yes-or-no questions. Users pick a side and price (1 cent to 99 cents), and when the opposing yes and no sides total $1 per contract, a trade occurs. Whichever side turns out to be correct keeps the full $1. The contract price reflects the market's estimated probability of an event happening. The exchange provides contracts that payout $1 for correct selections.[6] Traders are not allowed to use margin to take positions on the platform.[11] As of April 2023, the bet limit allowed on the platform is $25,000,[13] although certain contracts allow a maximum wager of $7 million. Users are prohibited from wagering more than the amount they have deposited.[3] Kalshi charges transaction fees per trade but does not rely on traders' losses for its revenue.[16]

Although Kalshi lacks formal standing with the Securities and Exchange Commission (SEC), its current offerings are limited enough that it is expected to operate under the regulations of the Commodity Futures Trading Commission (CFTC) alone. Matthew Kluchenek, a partner at Mayer Brown, stated that the SEC may intervene if the contract market is perceived to have an impact on securities prices in other markets.[11] Kalshi has engaged in talks with brokerage firms to include its platform in their listings and with other investment firms to act as market makers on the exchange. Orders on Kalshi remain on the books until a second trader is willing to take the opposing side of the contract, potentially resulting in lower volumes and liquidity. The company has an affiliate called Kalshi Trading, which trades and provides liquidity for many of its contracts.[11]

Kalshi has been described as a "new competitor for PredictIt",[24] offering a similar experience but with regulatory approval as a traditional futures market.[25] PredictIt operates as a nonprofit research project, restricting the number of traders to 5,000 per event and capping trade sizes at $850 per person per question.[23] In contrast, Kalshi operates as a designated contract market[20] and allows users to invest up to $25,000 on a single contract (and up to $7 million on certain contracts), surpassing PredictIt's limitations significantly.[23]

Kalshi faces challenges in dealing with questions that have continuous answers and providing clear results to a large user base.[6] The company aims to attract larger investors who may leverage it for hedging purposes and capitalize on opportunities presented by less-informed participants. However, broader adoption faces hurdles, such as the zero-sum nature of prediction markets and the need for increased liquidity to entice larger investors.[10]

• iPredict
• Intrade
• CME Group