Kalshi Inc. has secured a license allowing it to offer margin trading to users, a feature that would make the prediction market platform more appealing to sophisticated institutional investors.
The company has been approved to operate a futures commission merchant through an affiliate called Kinetic Markets LLC, according to a March 24 filing with the National Futures Association.
Prediction market exchanges offer yes-or-no wagers on the outcome of events from sports to elections, making them accessible to even novice users. Yet, at their core, the contracts offered by the platforms are similar to classic financial derivatives such as futures.
Adding margin trading to the mix would allow users to open positions without putting up the full amount of capital, a practice frequently deployed by hedge funds and other investment firms.
Kalshi declined to comment on the license, but its Chief Executive Officer Tarek Mansour said on Friday that a margin trading product would be coming “soon,” and that making the platform more capital efficient for institutional investors was a priority.
“Institutions are very aware of the cost of capital,” he said during a panel discussion moderated by Bloomberg News. “If you want to put a $100 hedge, you have to put $100 in the clearinghouse. That’s too expensive for an institution.”
Kalshi doesn’t expect to launch margin on event contracts immediately, but could consider making it available sooner for other types of products it has in the pipeline, a person familiar with the matter said. It will only be available to institutions initially, they added.
Retail traders have turned prediction markets into one of the fastest-growing parts of the financial universe, with weekly notional volume hitting a record high of more than $3 billion on Kalshi earlier this month. The platforms are also attracting investment from traditional exchange operators, and getting institutional investors on board is seen as a crucial next step in their development.
Already, brokers to hedge funds and other investors have started the process of opening up client access to event bets on Kalshi.
“Institutions want to see certainly, liquidity, the ability to margin,” Toby Moskowitz, a finance professor at the Yale School of Management and principal at AQR Capital Management, said on a separate panel on Friday. “But we need to get to that point to get that institutional involvement.”
US regulations would require users accessing margin products on Kalshi to undergo additional identity checks, such as providing employer information. ID requirements have become a hot-button issue as the platforms grapple with high-profile instances of insider trading.
Lawmakers in the US have put forward several pieces of legislation aimed at tackling insider trading, and earlier this week, Kalshi banned athletes and government officials from accessing markets they might hold influence over.
