Virtu Financial is joining a small but growing list of institutional market-making firms trading on prediction markets, according to people familiar with the matter.
The New York-based firm has started pricing and trading event contracts offered by exchanges including Kalshi Inc. and CME Group Inc., said the people, who asked not to be identified because the information is confidential.
Until last year, prediction markets had been too small to draw interest from Wall Street players like Virtu. One of the biggest players, Citadel Securities, said last month that it is monitoring the fast-moving space, but hasn’t begun trading and isn’t considering trading on sports, the most popular category in the nascent industry.
Virtu has been trading on some sports games alongside other topics, the people said. The firm, one of the largest institutional market-makers in the US, put a quantitative trader based in New York in charge of prediction markets, the people said. It has also enlisted a handful of other traders around the globe to allow for around-the-clock coverage, including on the weekends, one of the people said.
The firm is approaching prediction markets in the same way it handles other assets including equities and exchange-traded funds, the person said. That generally involves moving quickly between positions rather than making longer-term directional bets.
“We’re kind of ready to trade in any market, any exchange, and it’s really about where the volume goes,” Virtu Chief Executive Officer Aaron Simons said in the firm’s first quarter earnings call when asked about event-contracts.
A representative for Virtu declined to comment beyond the details shared on the company’s calls with analysts.
Prediction markets have boomed in popularity over the last year by bringing financial contracts into areas that used to be the domain of gambling companies.
Unlike sportsbooks, the platforms don’t take the other side of customer wagers. That role is now frequently being played by market makers, some of whom have enjoyed significant profits, while smaller traders have lost money, recent analysis has indicated.
Interactive Brokers Group Inc. announced on Thursday that it was expanding access to prediction markets for its customers by creating a single platform that offers contracts from its own event betting venue, ForecastEx, alongside products from Kalshi and CME Group.
Virtu has built its business by processing orders from retail traders, especially in the equity markets, since it was founded in 2008 by Vincent Viola and Douglas Cifu.
Firms like Virtu and Citadel Securities pay to handle trades with customers from brokerage firms such as Robinhood Markets Inc.
Susquehanna International Group, the trading business run by former professional gambler Jeff Yass, has been essentially the only financial trading firm to publicly discuss its role as a market maker on Kalshi. Jump Trading also became an early adopter, making markets on Kalshi and other prediction market platforms, Bloomberg reported.
Virtu’s entry into the space signals a broader adoption of prediction markets as a serious new asset class within the broader financial industry, despite the many legal uncertainties around the business and numerous allegations of insider trading.
Several states have argued in court that prediction markets should come under their gambling regulations. But the CFTC has taken the side of the platforms and said they should be regulated like financial derivatives.
In its early stages, Virtu is being selective about which types of event-contracts it trades as it builds its own market-making capabilities.
“In prediction markets, we don’t have any expertise predicting geopolitical events, but it really depends on volume, to be honest,” Simons said on the earnings call.
