Retail investor engagement continues to be an area of focus for financial services organizations.
A growing acceptance of event contracts is allowing further portfolio diversification for investors.
These instruments appear to be part of the future of derivatives investing.
In 2025, retail investor engagement through innovative products continues to be an area of focus for financial services organizations. In particular, event contracts—once prohibited instruments in the United States—are gaining popularity in the U.S. after being permissible for years in the United Kingdom, where they are regulated as financial derivatives.
Event contracts are binary contracts enabling investors to speculate on the outcome of specific occurrences such as political elections, sporting events or changes in key economic indicators like year-over-year inflation rates. These contracts typically have short-term, defined expiration dates and allow investors to speculate on, for example, whether their favorite sports team will win their next game.
The growing acceptance of event contracts in the United States is allowing further portfolio diversification for investors and revenue diversification for the financial services organizations offering these instruments. This trend is enhancing the resilience of financial services organizations and providing another way for organizations to capture relatively untapped capital from retail investors.
Event contracts are now legally recognized by the Commodity Futures Trading Commission and are available on CFTC-regulated exchanges such as Kalshi. The popularity of event contracts has grown since May 2024, when the CFTC specified the types of event contracts that are permissible and those that are impermissible because they are contrary to the public interest.
Here’s a simple example of how event contracts work: Investors can purchase a “yes” contract through a prediction market such as Kalshi if they believe their favorite sports team will win the next game. The prediction market will match the “yes” investor with an investor who purchases a “no” contract because they believe that team will lose the game. The winner receives the initial investment plus the counterparty’s investment.
Kalshi and other prediction markets charge a fixed fee to each investor upon the initial purchase of the contract. Investors can purchase contracts directly from Kalshi, or from a Kalshi brokerage partner such as Robinhood. Reflecting the rising demand for event contracts, as of March 2025, 78% of active Robinhood users surveyed by Mizuho Financial Group said they were interested in using the platform to purchase sports-based event contracts. Furthermore, 79% of event contracts purchased through Kalshi from March 1, 2025, through April 13, 2025, were sports related.
While event contracts may sound similar to sports betting, there are some key differences between platforms like Kalshi and sports betting platforms such as ESPN Bet. Event contracts are strictly peer-to-peer and their prices reflect investor sentiment, whereas ESPN Bet is based on odds set by a sportsbook and uses algorithms with built-in profit margins for the book, called a vigorish. Event contracts are more transparent due to the elimination of the sportsbook.
Furthermore, investors can purchase non-sports-related event contracts, whereas U.S. sportsbooks do not allow their users to wager on other events, such as those related to politics and the economy. The chart below shows the daily event contract volume on Kalshi for non-sports-related events between March 1, 2025, and April 12, 2025.
Given the perceived similarities between prediction markets and sports betting platforms, some U.S. states are challenging the legality of prediction markets; individual states have jurisdiction over gambling platforms, whereas event contracts are federally regulated by the CFTC. For instance, Nevada and Massachusetts launched legal investigations into Kalshi and Robinhood, respectively, alleging violation of gambling laws. The Nevada case settled, and the judge ruled that “federal law allows Kalshi to offer both sports and election-based event contracts on its exchange.” The ruling may set precedent for other states, potentially allowing Kalshi and other prediction markets to continue to operate.
With investor acceptance and the demand for event contracts growing in the U.S., these instruments appear to be part of the future of derivatives investing. Brokerages and other new prediction markets looking to enter the event contract space should consider the following:
Capital markets organizations should also pay attention to what other types of instruments used abroad might eventually enter the U.S. market as the landscape continues to shift. In the UK, derivatives contracts, such as contracts for differences (CFDs), are popular among retail investors, but in the U.S. they are prohibited under Securities and Exchange Commission and CFTC regulations. CFDs allow investors to speculate on the price movements of underlying assets. The contract seller believes that the value of the underlying asset will decrease, whereas the purchaser believes it will increase. These high-risk instruments are popular during times of market volatility.
With the U.S. following in the UK’s footsteps with the permissibility of event contracts, CFDs may potentially become available in the U.S. as another mechanism to capture the attention of retail investors.
