Marking a new frontier for the brokerage industry, last month Interactive Brokers and Robinhood introduced election markets, enabling clients to trade on the outcome of the 2024 U.S. election. These markets represent a blurring of finance, politics and gambling, allowing investors to combine their political insights and trading strategies while engaging with election developments. Both firms are utilizing the ForecastEx event contracts platform, a newly created Interactive Brokers subsidiary that received a Designated Contract Market (DCM) registration from the CFTC. The firms position the offerings as expanding investors’ capabilities.
- A Robinhood blog post announcing the offering noted: “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.”
- Interactive Brokers founder and CEO Thomas Peterffy is quoted in a Bloomberg article as saying that the offering will provide “a direct line to market sentiment on elections, helping them manage risk or express views on political events.”
A brief history of the rise of prediction markets
While prediction markets have existed for centuries, Interactive Brokers’s and Robinhood’s moves come on the heels of several recent developments, including the rise of digital prediction markets and legalization of sports gambling in many states.
The creation of blockchain-based prediction platforms in the mid-2010s—highlighted by the founding of Augur in 2014—marks a first crucial step. Then, in 2020, digital exchange Kalshi gained CFTC approval to operate as a Designated Contract Market, making it the first regulated financial exchange dedicated to trading event contracts. That same year, Polymarket launched, quickly gaining traction but later facing regulatory hurdles in the U.S, which have rendered it unavailable in the U.S. Still, it saw nearly $2 billion wagered in the election market in October alone.
Most recently, Kalshi entered a legal battle with the CFTC over the legality of election event contracts that culminated in a October 2024 victory in which an U.S. appeals court ruled that election-related contracts are legal. This served as the immediate trigger giving Interactive Brokers and Robinhood the greenlight to enter the election markets mix.
Meanwhile, the legalization and rise of sports gambling—which coincided with this series of events—has served as a fertile backdrop stoking interest and familiarity with gambling. Kalshi alone has attracted more than $100 million in election bets in slightly less than a month and became a top app in Apple’s App Store after its legal victory.
The product
Election markets operate similarly to traditional futures markets as both employ contracts with predetermined execution dates and prices. Yet, the event contracts composing election markets feature a binary outcome—they either pay in full if the predicted candidate wins or become worthless if the candidate loses.
Both firms’ presidential market allows clients to buy contracts for either Kamala Harris or Donald Trump with prices ranging from $0.01 to $0.99 and contracts offering a $1.00 payout upon resolution. The value of contracts can be interpreted as the probability of that event happening, so if a candidate has a contract valued at $0.55 it can be interpreted as a 55% chance of winning the election.
Interactive Broker’s election market
Interactive Brokers promotes its election market on its public site homepage and the secure site features a main navigation IBKR ForecastTrader button that leads to an event markets landing page. In addition to the presidential election and senatorial races, the firm provides a number of markets covering three event types: political, economic and environmental. Within the three categories, markets cover a wide-array of events:
- Will Congress raise or suspend the debt ceiling by January 1, 2025?
- Will the United States economy enter a recession by the end of Q1 2025?
- Will global carbon dioxide emissions exceed 42,000 million metric tons in 2024?
To acquire a presidential election contract, clients select either the Kamala Harris or Donald Trump market, which opens a trade ticket. The ticket features a dynamic price chart with Yes and No tabs. Below, a Your Activity section details positions, orders and trades, while a Rules Summary section provides helpful data points, like Payout, Last Trade Time and Payout Date. A sidebar provides additional details, including highest bids (Yes and No) and Daily Volume. At the top, a green Yes button and a red No button open a slideout order ticket.
Robinhood’s election market
Robinhood currently only offers access via its mobile app. The homescreen features a dedicated U.S. Presidential Election section that includes an election countdown and key information, such as contract prices and open interest.
An arrow icon at the top of the section opens a 2024 Presidential Election screen that displays interactive charting and a simple timeline of events, listing important dates, like election day and payout day. Static Buy Harris and Buy Trump buttons appear at the bottom of the screen, opening corresponding trade tickets that enable clients to buy a Yes position for each candidate. Clients input quantity amount, while Price and dynamically generating Estimated Cost and Payout If [Candidate] Wins values appear below. Finally, clients review and submit their order via a Review screen.
The broader implications of election markets
Brokerages’ entry into political prediction markets represents a compelling development on several fronts. While additional regulatory examinations are likely forthcoming, they already prompt serious societal considerations. Namely, there are concerns that they could influence public sentiment and, in turn, voting behavior. Market probabilities, along with the possibility of a payout, could consciously or subconsciously influence how people vote in elections. For example, one could easily see how confirmation bias—the tendency to reinforce beliefs with data that aligns with preferences—caused by election markets could influence elections.
That said, the turn toward event-based financial products and gambling could prove lucrative, serving as a differentiator that enables brokerages to expand market share. In many ways it seems like a natural product for them to add to their suite of offerings in their increasingly-ambitious attempts to become comprehensive, one-stop financial shops for their clients. Why shouldn’t people be able to act on beliefs about the rise or fall of an individual stock in the same place where they act on political speculation? Election contracts, in theory, allow investors to hedge their portfolio when they believe a particular political event will move the market. But certain contracts, like state-by-state results, have less clear economic implications, and leave open the door to the addition of sports gambling down the road.
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