Prediction markets are rapidly moving from a secondary niche to an emerging asset class, with monthly volumes of around $10 billion, US bank Citizens said. Although they are small compared to the more than $10 trillion in U.S. stocks, they are growing rapidly as platforms like Robinhood (HOOD), Kalshi, and Polymarket scale.
The bank said these markets address a fundamental flaw in traditional finance by allowing investors to trade directly on events such as inflation figures, election results, Federal Reserve decisions and regulatory approvals rather than relying on hard-hitting indicators such as futures, exchange-traded funds (ETFs) or single-name stocks.
Robinhood’s acquisition of derivatives exchange MIAX is seen as a key step toward vertical integration and deeper ties with institutional investors, positioning event contracts as a bridge between retail and professional liquidity, analysts led by Devin Ryan wrote.
While regulatory uncertainty, fragmented rules and low liquidity remain risks, analysts said prediction markets are already proving more responsive than polls or price indicators around the US election and bitcoin. ETF approvals. Market probabilities are likely connected to quantitative models, risk dashboards and corporate planning, they said.
Over time, analysts see these contracts evolving into a widespread hedging, speculation and information tool, with the potential to support a multibillion-dollar annual market as institutional participation increases.
So far, adoption is skewed toward retail users, both because the contracts are easier to understand than many derivatives and because sporting events have been a natural entry route, the report notes.
But as liquidity grows, market makers deepen their presence and spreads tighten, the bank hopes institutional investors will get involved.
Event-driven hedge funds could use prediction markets around mergers and acquisitions, litigation and regulatory milestones. Macro funds could turn to surprise CPI markets, election odds and geopolitical contracts as specific hedges.
Quantum companies could treat prediction markets as high-frequency data sources, mapping the changing probabilities of price movements in stocks, currencies and commodities. Corporate issuers can monitor these markets to time capital raises or assess the likelihood of regulatory changes affecting their businesses, the report added.
Read more: Prediction Markets Reaching 20 Million Phantom Users Through Kalshi
