Prediction markets surge, but Wall Street giants remain on sidelines

 Trading in prediction markets is booming, with platforms like Polymarket (POLYMARKET) and Kalshi (KALSHI) handling billions of dollars in weekly wagers tied to everything from sports to geopolitics, Bloomberg News reported Sunday.

Despite the rapid growth, major trading firms such as Citadel Securities, IMC Trading and Hudson River Trading have largely stayed out. Regulatory uncertainty and relatively small market size are part of the hesitation, but structural challenges also play a role.

Unlike traditional markets, event-based contracts lack an underlying asset, making it difficult for traders to hedge risk using standard strategies. As one researcher cited by Bloomberg News said, “Unlike options or futures markets, event contracts do not reference an underlying spot asset that permits mechanical hedging.”

This limitation forces participants to take direct bets on outcomes, more akin to insurance or credit underwriting than conventional market-making. Without effective hedging tools, firms often rely on wider spreads to manage risk. In some cases, these margins far exceed those seen in traditional financial markets.

While some firms, including Susquehanna International Group, have begun exploring the space, leveraging experience in sports betting, the broader industry appears to be waiting for more mature risk-transfer mechanisms before committing significant capital.

https://www.msn.com/en-us/money/companies/prediction-markets-surge-but-wall-street-giants-remain-on-sidelines/ar-AA20IIo9