MW Brokerages are raking in millions from your presidential election bets
By Gordon Gottsegen
There's a lot of money to be made off of election betting, and brokerages are cashing in
When it comes to placing bets, it's usually the house that wins.
There are many things that make the 2024 presidential election notable, but among them is how prolific betting on the outcome of the election has become. Part of this has to do with a legal ruling from earlier this year, which allowed exchanges to trade political event contracts.
Event contracts are binary financial derivatives that allow a trader to wager money on whether an uncertain future event will or won't happen. Once these contracts were legalized for the presidential election, a number of fintech platforms jumped in on the action and started providing them to their customers.
Online brokerage Robinhood Markets (HOOD) was one of those companies. Robinhood announced that it would be offering election contracts on Monday Oct. 28, and fully rolled out the feature to eligible customers two days later.
As of Election Day, over 200 million presidential event contracts were traded on the Robinhood platform. While that's a big number on its own, it's even more impressive if you keep in mind that Robinhood users had less than a week to place their election wagers.
According to Robinhood's website, it charges a $0.01 commission per contract, which means Robinhood made over $2 million on its election betting feature.
Read more: Robinhood is joining the election-betting party by offering wagers on Harris and Trump
But Robinhood isn't the only brokerage benefiting from these trades. Robinhood's election contracts trade through ForecastEx, an exchange specifically set up for event contracts. ForecastEx also gets a $0.01 commission for every Robinhood contract traded.
ForecastEx is a wholly-owned subsidiary of Interactive Brokers Group $(IBKR)$, another brokerage that allows clients to trade election contracts.
Interactive Brokers said that over 220 million election contracts were traded on the ForecastEx platform between their Oct. 4 launch and Nov. 4, the day before Election Day. As of Election Day afternoon, another 85 million contracts traded on the platform, bringing the total to over 305 million.
Interactive Brokers doesn't add any extra fees on top of the $0.01 per contract commission charged by ForecastEx, so that's more than $3 million for ForecastEx and its owner Interactive Brokers. It's worth noting that this includes the revenue from the Robinhood trades executed on its platform.
When looking at the size of the election betting markets, it's important to also consider Kalshi. Although it's not a brokerage the same way Robinhood and Interactive Brokers are, the fintech platform helped pioneer regulated event contracts trading in the U.S., and its lawsuit against the Commodities Futures Trading Commission paved the way for election contracts to become legal.
Roughly $558 million worth of election contracts have been traded on Kalshi, according to a company spokesperson. This includes not only the approximately $260 million wagered on "who will win the Presidential Election?" - Kalshi's largest election-related market - but also $300 million on who will win specific states, who will win the popular vote, which party will win the Senate and so on.
Normally, Kalshi charges a $0.01 to $0.02 trading fee per contract, but the company has decided to waive those fees for election-related contracts. The company says it doesn't generate any revenue off of the election contracts themselves. Of course, the number of new users it's getting on its platform is valuable in and of itself.
-Gordon Gottsegen
This content was created by MarketWatch, which is operated by Dow Jones & Co. MarketWatch is published independently from Dow Jones Newswires and The Wall Street Journal.
(END) Dow Jones Newswires
November 05, 2024 16:57 ET (21:57 GMT)
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