US broker Robinhood has taken the step of launching futures contracts to allow traders to bet on the outcome of the US presidential election on Tuesday. The contracts are already live but are being restricted to US citizens only.
Election outcome trading is quickly becoming big business. Robinhood’s move came after another platform, Kalshi, won a ruling against the CFTC, which had tried to stop election outcome trading in the US. The CFTC is appealing the ruling.
What is election outcome trading?
Election futures contracts are an interesting phenomenon, rising from mostly under the radar decentralized blockchain wager platforms to recent fame with the 2024 election. Many participants are treating these financial products like a bet they would place on their favorite sports team, however there is something more here.
Major world events have financial impact on everyone to some degree, and the US presidential election is often a particular driver of change to the global economy. With such a polarized political environment in the United States today the impact of how this election goes could be tremendous.
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In the case of the Robinhood offering, traders can use a Kamala Harris or a Donald Trump contract. The contracts are being made available through Robinhood’s derivatives platform. Interactive Brokers has also now launched contracts for traders looking to take a position on the US election, via its ForecastEx platform.
“If the outcome of any event can dramatically change my earnings, my business activity, my assets, and so on, then a ‘betting market’ on this event becomes a very important hedge,” said Henry Robinson, founder of Magnetar Blockchain. “As financial markets evolve and democratize, investors will grow to appreciate these kinds of very specific risk contracts more and more because sharper tools create the capacity for the most sophisticated portfolio construction. It’s a smart move for Robinhood to come to the table early.”
The CFTC and some other critics of political outcome trading have expressed concerns about whether these still thinly traded markets could be manipulated. Polymarket, for example, investigated its own client order flow when it found that a single French trader using four accounts was responsible for a multi-million dollar bet on their Trump contract.
Political outcome trading using contracts is a very different beast from simply betting on the outcome as it employs very different methodologies.
Robinhood released a statement, saying: “We believe event contracts give people a tool to engage in real-time decision-making, unlocking a new asset class that democratizes access to events as they unfold.”
Event contracts could provide traders with very useful hedging tools as markets become increasingly focused on election outcomes, especially in G7 countries.
