Prediction market platforms, including Kalshi, are making significant efforts to attract institutional investors and hedge funds. These platforms have seen a surge in popularity among retail traders and are now focusing on financial institutions capable of placing large trades.

Asaf Meir, CEO of Solidus Labs, highlighted the interest of hedge funds in using prediction markets to express their views in ways not possible in traditional financial venues. Kalshi recently executed its first customized block trade and is actively targeting larger institutions, with trading volumes from institutional investors growing 800% over the past six months.

Andy Ross, head of institutional business at Kalshi, noted that asset managers, hedge funds, and other financial institutions are increasingly adopting these platforms. They often manage risk by taking offsetting positions, with some contracts exceeding several million dollars.

Institutional Growth and Partnerships

Prediction markets are forming partnerships with prime brokers and liquidity providers to expand their institutional client base. Clear Street has partnered with Kalshi to offer event contracts to its customers, while Jump Trading is working with asset managers and hedge funds to provide access to these platforms.

London-based Marex is collaborating with Kalshi and Polymarket to connect investors to these exchanges. Meanwhile, companies like AQR Capital Management and Susquehanna International Group are seeking specialists in prediction market trading.

Addressing Liquidity Concerns

Despite the growth, liquidity remains a concern for prediction markets. Analysts warn that larger trades can overwhelm shallow order books, causing significant price movements. Meir emphasized the need for substantial daily notional volume to attract hedge funds.

Edward Ridgely, co-founder of Stand, noted that while there is institutional interest, actual activity is limited due to liquidity constraints. Kalshi is working to bring more institutions onto its platform to address these concerns.

As prediction markets gain legitimacy as an alternative asset class, institutions are increasingly using them to hedge against specific risks. Toni Gemayel of Coinbase highlighted their growing acceptance among financial institutions.

Original reporting: Appleton, WI News Feed (HLL/CB) — read the source article.