Prediction markets, where users trade contracts on outcomes ranging from Federal Reserve decisions to election results, have moved from the fringes into mainstream client conversations. Combined trading volume on Kalshi and Polymarket, the two largest U.S. platforms, exceeded $60 billion in the first months of 2026, already surpassing the $51 billion recorded for all of 2025, according to InvestmentNews reporting in April 2026. Bernstein projects the sector could reach $1 trillion in annual trading volume by 2030. A March 2026 Northwestern Mutual Planning & Progress study, conducted by Harris Poll among 4,357 U.S. adults, found that one-third of Gen Z respondents who feel financially behind said they are currently invested in or considering prediction markets or sports betting this year.
Advisors are increasingly fielding questions from clients about these platforms. Without a clear framework, these conversations can become difficult. Three practitioners share how they approach the topic, emphasizing the unique risk profile of event contracts and the importance of proper sizing.
Event contracts require a different risk framework
John O'Connell, founder and CEO of The Oasis Group, argues that event contracts can be a legitimate investment thesis, but only when sized correctly for their fundamentally different risk profile. Unlike equities or options, event contracts have capped losses and a fixed resolution date, settling at either $1 or $0. "Clients who are used to equities and even options often don't have a framework for a position that caps risk on one end and forces total resolution on the other," O'Connell said. He advises clients to focus on whether they have sized the position for a total, binary resolution rather than the gradual repricing typical of stocks.
O'Connell also addresses a common misconception: that CFTC regulation of Kalshi as a Designated Contract Market implies lower risk. "A regulated exchange guarantees fair execution, proper disclosures, and protection against manipulation," he said. "None of that changes the fact that an event contract settles as an all-or-nothing outcome with no partial recovery." He compares the risk to an uncovered option or any derivative with a hard expiration. The trading interface, which resembles stock quotes rather than options chains, can mislead clients into applying a buy-and-sell mentality. Proper sizing, he says, shifts the conversation from legitimacy to structure.
Useful as information, not as a substitute for process
Stuart Katz, chief investment officer and principal at Robertson Stephens Wealth Management, draws a clear line between prediction markets and investment theses. An event contract resolves to a fixed payoff when the event occurs or not, while an investment thesis relies on expected cash flows, fundamentals, diversification, and a defined portfolio purpose. "We do believe that dependent upon the prediction, an investor may consider those markets as useful information inputs into portfolio construction and potentially hedging of specific risks, but they should not be mistaken as a substitute for a rigorous investment process," Katz said.
Katz warns that the informal feel of prediction markets can lead clients to underestimate risk. These are concentrated, binary bets with meaningful volatility, liquidity risk, regulatory risk, and binary outcome risk. "We consider them as speculative event exposures, not as core portfolio holdings," he said. When a client has already invested, Katz approaches with curiosity, seeking to understand the size, purpose, and liquidity of the exposure, and whether it belongs inside or outside the client's risk budget.
The case for calling it what it is
Kevin Thompson, founder and CEO of 9i Capital Group, takes a more direct stance: any investment with the potential for a 100% loss based solely on a single event fits the definition of gambling. He acknowledges a limited parallel to options contracts, which can be used for hedging, but for most participants, betting on an event is speculation, not investing. Traditional equities retain a claim on underlying assets and future earnings, offering a potential recovery floor, whereas event contracts offer no such floor.
Thompson also highlights the access issue: prediction markets are increasingly integrated into mainstream platforms, making them more accessible than ever. For example, ERShares' XOVR ETF has allocated $30 million to Kalshi, and Cboe has launched regulated binary options, signaling institutional interest. Advisors should be prepared to discuss these developments and help clients understand the distinction between investing and speculation.
As prediction markets continue to grow, advisors who establish clear frameworks will be better equipped to guide clients. The key is to emphasize risk, sizing, and the binary nature of these contracts, while acknowledging their potential as information inputs. For more on the regulatory landscape, see the SEC's comment window on novel ETFs and the CFTC probe into Kalshi trading.
