Trading platform Robinhood has launched a prediction markets hub within its app, allowing users to trade on event outcomes, including interest rate decisions and sports events. With prediction markets gaining in popularity () the move signals an expansion beyond traditional stock and crypto trading, as the company continues its efforts to innovate in the delivery of financial services in areas like asset tokenisation and private markets.
Despite recent brushes with the SEC, Robinhood’s expansion into event contracts comes on the back of growing interest in prediction markets, particularly in the wake of the US presidential election cycle. The rise of Polymarkets has been admired by many, as nearly anyone can create predictions.
Event contracts function similarly to binary options, allowing traders to bet on specific outcomes and profit (or lose) from the outcome.
While some view prediction markets as mere gambling, and they have strong similarities, scholars have pointed to academic research showing that prediction markets can function as a powerful way to incentivise truth discovery and research. Some view these markets as more effective than traditional polling or survey techniques when it comes to predicting matters such as votes, as people may say what they believe a surveyor wants to hear, but when they are putting their money where their mouth is, behaviour becomes more honest.
The CFTC has raised concerns about prediction markets, arguing that event contracts resemble gambling rather than legitimate financial instruments. Just last month, Robinhood was forced to scrap Super Bowl betting contracts following regulatory pushback, and the CFTC has an upcoming roundtable to discuss "sports-related events contracts".
Despite this, Robinhood is forging ahead, claiming that these markets provide hedging opportunities for investors and businesses against uncertain events.
The concept of prediction markets is not new to Web3 space. An early decentralised predictions market, Augur, gained notoriety in 2018 when people started betting on political assassinations and it has shrunk since. Polymarket has been the recent darling, enabling decentralised betting on real-world events and attracting significant attention during the US presidential cycle for forecasting President Trump’s victory despite blocking US users following a CFTC settlement.
A key difference is that decentralised prediction markets operate without intermediaries, using smart contracts to automate payouts and prevent manipulation. Robinhood, on the other hand, relies on a centralised platform operating through a CFTC regulated exchange. Robinhood says it has been in close contact with the CFTC on the product offering.
Robinhood’s expansion into prediction markets is a clear sign of increasing demand for speculative event-based trading, but whether regulators will allow it to flourish remains uncertain. For now, the battle over what constitutes a financial instrument versus mere gambling looks set to heat up across traditional and decentralised markets.
By Steven Pettigrove, Luke Misthos and Michael Bacina
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