Betting on Reality

Prediction markets have entered the mainstream finance, with Major institutions backing platforms like Polymarket and Kalshi.

The US treats prediction markets as derivatives. Event contracts fall under commodities law, not state gambling statutes.

Forecasting utility is strongest in macro markets. Recent research finds that Kalshi forecasts matched or beat futures and Bloomberg consensus estimates.

India’s market depth remains limited. Indian political contracts trade at negligible volumes compared to US prediction markets.

. For the past three decades, prediction markets have largely been an academic category. Launched in 1988, the pioneering Iowa Electronic Markets is known for accurately predicting election outcomes. However, it is only after the 2024 US Presidential elections that prediction markets have truly bloomed. Since then, NYSE's parent company has put $2 bn into a prediction market and Bloomberg has inserted prediction-market odds into its terminal. A recent Federal Reserve paper concluded that prediction markets beat consensus forecasts on both, policy rate announcements and inflation prints.

Essentially, prediction markets are financial contracts whose payoff is tied to real-world outcomes. They are classified in the US as federally-regulated derivatives rather than as gambling instruments. Platforms such as Kalshi and Polymarket allow trading on events ranging from interest rates to elections, with prices reflecting collective probability estimates. The underlying logic is that markets aggregate dispersed information efficiently, an idea increasingly supported by empirical research.

For CEOs and CFOs in India, the category matters on two tracks: as a forecasting input that their peers in New York and London take seriously, and as a signal about where retail financial energy is migrating.

Why Now? Capital and Institutional Flows In the past few months, Kalshi has raised $2 bn from investors including Paradigm and Coatue, taking its valuation to $22 bn. Last October, Intercontinental Exchange committed up to $2 bn to Polymarket, becoming its exclusive global distributor of event-driven data to institutional capital markets. Through a joint venture, CME Group recently launched $1 minimum contracts on the S&P 500, CPI and sports.

Significantly, Kalshi now rides on the fast-growing trading platform, Robinhood, which itself launched a new prediction-markets hub last year. Robinhood has integrated Kalshi into its 27 mn funded brokerage accounts, and event-contract trading revenue reportedly grew 350% between the third and fourth quarters of 2025 . Interactive Brokers and Webull have also integrated Kalshi event contracts, pushing prediction markets deeper into mainstream retail brokerage infrastructure. ETF issuers, including Bitwise, Roundhill and GraniteShares filed for prediction-market-linked ETFs in 2026, though the SEC temporarily delayed approvals. Additionally, CNBC has entered into an exclusive partnership and CNN has signed formal partnerships around prediction-market data and coverage.

How the World Regulates Prediction Markets The United States: federal pre-emption, contested

The US treats CFTC-designated event contracts as federal derivatives, operating under the same framework as CME’s (Chicago Mercantile Exchange) futures exchanges. This classification has, however, been tested through legal challenges to Kalshi’s sports-linked contracts. More than 30 state attorneys general argued that these instruments are effectively gambling products, but in April 2026, a federal appeals court ruled in Kalshi’s favour, holding that federally-regulated event contracts fall squarely within commodities law and therefore pre-empt state gambling statutes. The judgment is the first clear legal articulation that prediction markets sit inside the federal derivatives perimeter, not state betting regimes, with a probable Supreme Court review ahead.

The rest of the world: restriction or prohibition

The UK, which has a long history of legalised sports betting, is more restrictive than its transatlantic cousin. A 2019 retail ban on binary options by the Financial Conduct Authority effectively excludes these platforms, and the UK Gambling Commission has indicated it would treat them as betting intermediaries. Polymarket is also geoblocked from UK users. The EU has no dedicated framework, but national regulators have moved on gambling grounds: France blocked Polymarket in November 2024, and Dutch regulators fined its operator up to €840,000 in January 2026 after local users wagered an estimated €27-32 mn on national elections. Last year, Australia classified prediction markets as illegal gambling. China treats them as a criminal offence and the UAE bans them under penal and cybercrime laws.

India: prohibition tilt, regulatory exclusion

Gambling in most forms has long been restricted in India, and recent policy has reinforced that direction rather than softening it. The Promotion and Regulation of Online Gaming Act (PROGA) has accelerated the shutdown of domestic real-money gaming activity, with banks and payment gateways withdrawing support even as full implementation remains pending. On prediction markets, SEBI’s position, laid out in a 2025 note, is clear: opinion trading falls outside its remit as it does not qualify as a ‘security’ under the Securities Contracts Act, and any such platforms would not be recognised exchanges. The RBI and MEITY (Ministry of Electronics and Information Technology) have issued no formal position, leaving prediction markets effectively outside both, financial regulation and permitted gaming activity.

Forecasting Utility Prediction markets deliver the greatest practical value in terms of macroeconomic forecasting, where they provide high-frequency, continuously updated expectations rather than static point estimates. A Federal Reserve working paper finds that Kalshi markets generate well-calibrated probability distributions and respond sharply to new information, capturing shifts in expectations that surveys and traditional derivatives often miss.

On monetary policy, Kalshi’s forecasts are comparable to professional surveys over longer horizons and improve meaningfully closer to events. The Federal Reserve paper found that Kalshi’s median and modal forecasts achieved a perfect forecast record on the day before FOMC meetings, outperforming fed funds futures. Leading up to the September 2024 FOMC meeting, Kalshi assigned a greater probability to a 50 bps cut (which eventually materialised) than did conventional futures markets. On inflation, Kalshi’s headline CPI forecasts have lower forecast errors (~7 bps on release day) than the Bloomberg consensus (~8 bps) estimates.

Prediction markets also capture macroeconomic shifts in real time. Following dovish remarks from Fed governors Christopher Waller and Michelle Bowman in mid-2025, Kalshi’s implied probability of a July 2025 rate cut rose sharply before reversing after a stronger-than-expected employment report. Unlike surveys, these markets update continuously as new information arrives. This advantage is most visible in areas where no comparable market-based tools exist. Kalshi offers real-time distributions for variables such as GDP growth, unemployment and core inflation, filling gaps left by traditional instruments, which either do not trade or require strong modelling assumptions.

The evidence is less uniform outside the macro realm. Election markets can be directionally accurate but vary by platform and liquidity. Polymarket priced Donald Trump at 58% the day before the 2024 US election, while many polling models remained near 50:50. Sports markets remain structurally weaker, as pricing is shaped more by bettor behaviour and demand than by pure information aggregation.

Predictive power for India

For India, the predictive signal remains thin because trading volumes are still too small to produce deep informational markets. Polymarket’s 2024 ‘Modi re-elected’ contract traded less than $0.4 mn in total volumes against billions of dollars for major US political contracts, and there are still no meaningful RBI, macroeconomic or Indian corporate-event markets.

Notably, though, recent state-election contracts have seen a big uptick, with over $2 mn bet via Polymarket on last month’s West Bengal polls. On April 21 st , Polymarket had 52% odds on BJP’s victory. Given that regional elections have limited global relevance, most participants in such bets would have been Indian residents. This suggests two parallel developments: Indian prediction-market liquidity is slowly deepening, and more Indian retail users are entering offshore event-trading platforms. Still, Indian prediction markets should be better read as directional sentiment indicators rather than as robust forecasting tools. Expectedly, the next national election should see even larger numbers, given that such events attract huge global attention.

Strategic Imperatives for CXOs 1. Read prediction market prices as a zero-cost forecasting supplement

The above-cited Federal Reserve paper concluded that Kalshi beats Bloomberg consensus estimates on headline CPI and fed funds futures on FOMC decisions. Bloomberg Terminal-integrated Polymarket probabilities on Fed decisions, elections and geopolitical events are already on screens that Indian CFOs pay for. Crucially, however, these instruments are notably more reliable for macro and political events in deep markets like the US. For India-specific events, the current liquidity is too thin for confident inference, which makes it inadvisable to take them too seriously. As a quick action point, CXOs should consider setting up strategic automations or alerts, tracking certain prediction market outcomes to test their forecasting utility.

2. Treat the capital-substitution evidence as a competitive signal

As prediction markets scale and integrate into mainstream brokerage platforms, they could start to compete for a share of retail financial capital, or even disposable income, over time. An NBER paper established that sports-betting legalisation can reduce net household investment by as much as $2 for every $1 wagered. The implication is that a sustained flow of retail capital into such instruments could affect domestic market participation, shaping both how investors allocate capital and how they engage with financial intermediaries.

Indian brokerages and asset managers compete for the same analytically-engaged retail base: investors who actively trade equities, derivatives and macro events, and who are comfortable allocating capital based on probabilistic views. Platforms such as Robinhood have made event contracts accessible to this cohort through familiar trading interfaces, lowering the friction between traditional investing and outcome-based wagering. This pattern also lends an economic rationale to India’s restrictive stance on gambling, suggesting that limiting such channels may help contain retail capital diversion from formal financial markets.

The Bottom Line Prediction markets have moved beyond the edge of finance into regulated market infrastructure. In the US, they now sit inside the federal derivatives framework, backed by institutions ranging from Robinhood and CME Group to Bloomberg and the Federal Reserve. Their forecasting utility is strongest in liquid macroeconomic markets, where they increasingly rival traditional surveys and futures. India remains structurally different: regulation still tilts towards restriction, domestic market depth is limited and most activity remains offshore. Yet rising Indian participation suggests the category is holds strategic importance for the Indian markets in the future.