Prediction markets are overlapping the financial market and gambling industries. They provide the opportunity to hedge and speculate on a very wide variety of events with uncertain outcomes.

A person or business who would typically use the futures markets now has another means for hedging against unwanted outcomes. A small transportation company concerned about fuel price volatility could use event contracts to protect against rising oil prices. The same goes for a coffee shop owner concerned about coffee prices.

Sports fans have a new outlet to place wagers on the outcome of games, player performance and which college football coach will be out before September. (University of North Carolina coach Bill Belichick currently leads on the Kalshi platform with 16% odds.) I bought a few event contracts—in very small dollar amounts—on University of Kansas men’s basketball games.

I bought those event contracts to gain familiarity with the prediction markets. I used Robinhood’s brokerage app on my iPhone. It was fast and easy for me to go from never having looked at the prediction markets to buying contracts on a basketball game.

Let that sink in for a moment.

Prediction markets are not new. They’ve existed in Europe for years. PredictIt has allowed predictions to be made on U.S. elections since its launch as a not-for-profit educational project in 2014.

New entrant Kalshi describes itself as “the first federally regulated exchange dedicated to trading on the outcome of future events”—with regulation through the Commodity Futures Trading Commission (CFTC). Polymarket US “is operated by QCX LLC d/b/a Polymarket US, a CFTC-regulated Designated Contract Market.”

Both Kalshi and Polymarket facilitate the creation of markets in areas that have not previously existed in the U.S.—at least not on such a large scale. Their offerings range from nonsensical contracts to financial and economic contracts that could be used in a financial strategy.

AAII financial analyst Sam Levine takes our first look at these markets, which had $64 billion in trading volume last year. Given their size and projected growth, we think it is important that you understand what they are and how they operate. A little bit of knowledge can go a long way toward protecting you and your portfolio.

Wishing you prosperity and good health,