By Paul R. La Monica

There's a high chance that Elon Musk's $1 trillion pay package will be approved by Tesla's board of directors on Thursday. Care to bet on it?

You can on sites like Robinhood Markets. On Wednesday, an "event contract" that Musk will win the pay package was selling for 95 cents on Robinhood's platform. That means traders see a 95% chance of the package being approved. Buy the contract and you'd earn a 5% profit, less a roughly 2% commission, if Musk wins the $1 trillion payout.

Prediction markets let you bet on just about anything and they're expanding rapidly from dedicated sites like Polymarket to brokerages like Robinhood. Other brokerages now offering prediction markets include Interactive Brokers, Webull and Crypto.com.

Exchanges are jumping in too. New York Stock Exchange owner Intercontinental Exchange said in October that it's investing $2 billion in Polymarket, one of the largest prediction markets. CME Group said in August it's partnering with Flutter Entertainment-owned sports betting company FanDuel to launch a unit that would compete with Polymarket and Kalshi.

The brokerages and exchanges want a piece of a relatively small but rapidly growing market. Research firm Metatech Insights forecasts that predictions markets will go from $1.4 billion in volume last year to $95.5 billion by 2035.

"Everybody will get into this sooner or later. I find it unimaginable that they wouldn't," Interactive Brokers chairman Thomas Peterffy told Barron's.

Prediction markets are essentially sites to wager on "binary" yes/no events -- say a presidential election, Federal Reserve decision on interest rates, or outcomes of sports events. Traders buy and sell contracts on the events and prices fluctuate as odds rise and fall on the outcome.

Contracts are typically priced between a penny and $0.99 with higher prices implying lower payouts. For example, a contract on Robinhood is now available on whether the Fed will cut more than 25 basis points (a quarter of a percentage point) in December. If you think the Fed will cut more sharply, you could buy a contract for $0.06 on the dollar, indicating a 6% probability. The payout would be 94% less commission and fees, nearly doubling your money.

But the odds are much greater that the Fed will only cut 25 basis points at its next meeting with the "No" side at 95 cents or 95%. That means you'd earn roughly 3%, after commissions.

While the contracts offer potentially big payouts, their binary nature makes them all or nothing bets; if you're wrong, the contract expires and you'd lose the entire position. It's one reason why critics argue event contracts are no different than sports betting or other types of gambling with binary outcomes.

That isn't stopping firms like Robinhood. Its Predictions Markets Hub launched in March in a partnership with Kalshi. Roughly 1,100 events are now on Robinhood's site, from pro and college sports games to political events. Want to bet on how long the government shutdown will last or whether President Trump will create a national Bitcoin reserve? You can do so.

Robinhood said in its third quarter earnings report that the total number of event contracts traded more than doubled from the second quarter, to 2.3 billion. And the company is off to a hot start in the fourth quarter, with 2.5 billion contracts trading in October.

"Prediction markets are growing rapidly," CEO Vlad Tenev said. Chief financial officer Jason Warnick added that the prediction markets business, along with its Bitstamp crypto exchange, "are generating approximately $100 million or more in annualized revenues."

Executives at the firm view prediction markets as a way of bringing in more young traders.

"We're seeing both existing users who are very interested in expanding their portfolios via these new prediction markets but it's also a nice way for new users who hadn't been as active on the platform," said JB Mackenzie, general manager and vice president of futures for Robinhood.

Prediction markets are still small on brokerage sites where traders spend far more time and money on stocks, options, and other securities. "Frankly, it's not happening as fast as I expected," Peterffy said of Interactive's ForecastTrader predictions market. "But we think it will eventually pick up. We are committed to this."

Two big issues are regulatory oversight and fraud, especially in sports gambling.

Binary contracts are legal on exchanges regulated by the Commodity Futures Trading Commission (CFTC), such as the Chicago Mercantile Exchange, Chicago Board of Trade, and New York Mercantile Exchange. Kalshi and ICE Futures, the options and futures exchange owned by the parent company of the NYSE, are also regulated by the CFTC.

Both the CTFC and Securities and Exchange Commission have issued warnings about fraud with binary exchanges, urging investors to only use federally regulated-platforms. The recent sports betting scandals involving the NBA have heightened concerns that traders may be entering markets without enough regulatory oversight.

More brokerages might get involved if prediction markets opened up to corporate news events that could move stocks. Yet it's not clear who would have oversight over stocks and other securities.

Until that's settled, Petterfy doesn't expect brokerages to start offering contracts on news that could impact a stock. "We are beginning to have conversations with the regulators and see how we go forward," he said.

The SEC and CFTC were not available for comment, citing the government shutdown.

Some brokerages are avoiding prediction markets. James Kostulias, head of trading services for Charles Schwab, said the firm hasn't heard much from clients asking about event contracts and that there are no imminent plans in this area.

Stephen Sikes, chief operating officer at Public, another brokerage, says the firm is looking into it but has no immediate plans. "We support gambling in the economy but we don't see that as something for our investors," he said. "We're not hearing demand for earnings-linked or other securities-related event contracts."

One casualty of the trend may be casino operators and sports betting sites. Shares of FanDuel's parent Flutter Entertainment and DraftKings, and stocks of several casino operators, have fallen this year in part due to concerns about competition from predictions markets.

It may be a matter of time before they enter the fray. The National Hockey League recently announced partnerships with Kalshi and Polymarket. Casinos may have no choice but to join the predictions market gold rush too.

Write to Paul R. La Monica at paul.lamonica@barrons.com

This content was created by Barron's, which is operated by Dow Jones & Co. Barron's is published independently from Dow Jones Newswires and The Wall Street Journal.

(END) Dow Jones Newswires

November 06, 2025 02:00 ET (07:00 GMT)

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