MW Wall Street is finding a new use for the latest retail-trading obsession

By Gordon Gottsegen and Joy Wiltermuth

As more people start using prediction markets, Wall Street is finding ways to derive value from them

Derivatives can provide a gut check on how traders feel about future events, but prediction markets can be much more direct.

It's hard to deny the momentum of prediction markets. Platforms like Polymarket and Kalshi gained widespread attention in 2024 for letting people wager money on the U.S. presidential election, but these platforms have grown dramatically since.

Kalshi and Polymarket saw a combined monthly trading volume of roughly $5 billion in November 2024 - a huge number at the time, according to data from The Block Research. In March 2026, monthly trading volume hit $24 billion.

As prediction markets grow in popularity, so does their usefulness for Wall Street.

"We've seen the prediction markets have some accurate calls lately, which is absolutely something Wall Street is now closely monitoring," Ryan Detrick, chief market strategist at Carson Group, told MarketWatch in an email.

Detrick pointed out that prediction markets aren't perfect. Sometimes they incorrectly price in the odds of something happening. For example, Detrick said that prediction markets forecasted that Jerome Powell would leave the Federal Reserve after his term as chair was over. But at this week's Federal Open Markets Committee meeting, he announced he would stay on as a governor.

See: Could Powell's decision to stay worsen relations between the Fed and the White House?

But even if they don't always guess the correct outcome, prediction markets provide insight into what people are thinking - and in many cases, that's insight professionals can use to guide investing decisions.

"This is new information that could give clues on parts of the market that once didn't have much information," Detrick said.

Not all of the markets on these platforms provide information that can inform investments. About 75% of Kalshi's volume in April came from sports-related prediction markets, according to data from Dune. But for the ones that can - like markets on FOMC decisions, economic data predictions, etc. - they provide a much more direct representation of what people think will happen than other derivatives do.

The Federal Open Markets Committee meeting gives the Fed a chance to congregate and determine the best path forward for monetary policy. This includes setting the Fed's target interest rate, which can influence the direction of capital markets.

"Prediction markets are yet another venue with heavy retail participation, offering a potentially cleaner read on expectations around specific catalysts that are harder to infer from traditional assets, e.g. Hormuz Strait reopening," the Barclays Equity Derivatives Research team wrote in a recent note.

In that note, analysts examined the case for using prediction markets as a tool for measuring risk that stems from the Fed's monetary policy. When looking at prediction markets tied to macroeconomic events, analysts found that liquidity was highest for markets tied to FOMC decisions. Barclays deduced that the prediction markets with the most liquidity were able to provide valuable insights that can be compared to other available data. For things like the FOMC meeting, that means comparing prediction markets to things like Fed funds futures.

Doubts about the Fed's ability to cut interest rates because of the Iran war led the policy-sensitive 2-year Treasury yield BX:TMUBMUSD02Y to jump 50 basis points since late February, to 3.87% on Friday. That signals a sharp repricing of two expected Fed interest-rate cuts. But this doesn't only manifest in the bond market. The below chart shows that betting on Fed rate moves has been a very active area in prediction markets since mid-last year.

"Traditional assets often embed substantial noise when pricing event risk, as they can move for unrelated reasons. Prediction markets directly price outcomes and agreement, making them a cleaner cross-check on catalyst risk as liquidity improves, even for investors trading traditional assets rather than the contracts themselves," read the note.

Barclays also found that prediction markets are much "stickier" than index options, which means retail investors are more likely to trade prediction markets far in advance for a correlated event.

"FOMC prediction contracts also trade at a meaningfully slower pace than comparable S&P FOMC-related options, with around 50% of volume occurring in the week before the meeting versus 95% for S&P [options]," the note said.

This means investors can start positioning themselves earlier for event-related risks by looking at prediction markets. A clear example of this has been the close attention paid by Wall Street to that odds that correctly predicted the Supreme Court's ruling in February against President Trump's emergency use of tariffs.

This economic forecasting is one of the key reasons that proponents of prediction markets use to argue why they should exist. Although critics may dismiss prediction markets as gambling, prediction-market proponents say they provide valuable insights into the future.

Jack Such, a spokesperson for Kalshi, said that prediction markets provide investors with both forecasting data, as well as the opportunity to price in any idiosyncratic risk as it happens.

"Traditional asset prices are vague combinations of their many underlying risk factors - macro sentiment, company deliverables, technological progress, etc. Prediction markets enable investors to effectively break down their investment into its component parts, and hedge risk accordingly," Such said.

He also argued that prediction markets are more accurate when both experts and non-experts participate in them.

Polymarket didn't immediately respond to a request for comment. Polymarket has a data partnership with Dow Jones, the publisher of MarketWatch.

-Gordon Gottsegen -Joy Wiltermuth

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

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May 01, 2026 13:58 ET (17:58 GMT)

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