Prediction markets — platforms that let users trade event contracts on outcomes ranging from Federal Reserve rate decisions to election results to sports scores — are no longer a fringe curiosity. Combined trading volume on Kalshi and Polymarket, the two largest U.S. platforms, exceeded $60 billion in the first months of 2026, surpassing the $51 billion recorded across all of 2025, according to InvestmentNews reporting in April 2026. Bernstein projects the sector could reach $1 trillion in annual trading volume by 2030. Meanwhile, 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.
Clients are already asking. For advisors without a clear framework, the conversation is harder than it needs to be. Three practitioners share how they handle it.
John O'Connell, founder and CEO of The Oasis Group, argues that event contracts are a legitimate investment thesis — but only when sized correctly for what makes their risk profile fundamentally different from anything else in a client's portfolio.
Most positions carry open-ended risk and open-ended time. A short position stays exposed for as long as it is held, with no fixed date by which the market must prove the thesis right or wrong. An event contract changes both variables simultaneously: the loss is capped at the size of the position, and the outcome resolves on a fixed date to one dollar or zero.
"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. "I tell clients the question isn't whether an event contract counts as investing. It's whether they've sized the position for a total, binary resolution instead of the gradual repricing they're used to from a stock."
O'Connell is also direct about a misconception he encounters regularly: clients assuming that because Kalshi operates as a CFTC-regulated Designated Contract Market, the positions themselves carry lower risk. That is a category error. Regulation confirms that the exchange is supervised — it says nothing about the risk of the contract being held.
"A regulated exchange guarantees fair execution, proper disclosures, and protection against manipulation," O'Connell said. "None of that changes the fact that an event contract settles as an all-or-nothing outcome with no partial recovery. The right comparison isn't an equity, bond, ETF, or mutual fund. It's an uncovered option or any other derivative product with a hard expiration."
The trading interface, he adds, is part of the problem. An event contract looks closer to a stock quote than an options chain, which leads clients to bring a buy-and-sell mentality to a position that deserves the same sizing discipline as any derivative. "Size for that, and the conversation stops being about legitimacy and starts being about structure," O'Connell said.
Stuart Katz, chief investment officer and principal at Robertson Stephens Wealth Management, draws a clean line between what prediction markets are and what an investment thesis requires.
An event contract resolves to a fixed payoff when the event occurs or does not. An investment thesis, in Katz's framework, is predicated on expected cash flows, fundamentals, diversification, and a defined purpose within a portfolio — not simply being right about one headline event.
"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.
He is also clear that the informal feel of prediction markets creates a specific risk: clients often assume they are safer than they are because the dollar amounts are modest and the platforms feel less formal than traditional financial exchanges. In reality, these are concentrated, binary bets on discrete events that can carry meaningful volatility, liquidity risk, regulatory risk, and binary outcome risk — where the definition of whether the event occurred may itself be subjective.
"We consider them as speculative event exposures, not as core portfolio holdings," Katz said. "A market price may suggest a consensus probability, but that does not mean the outcome is predictable with high confidence, nor that the trade is easy to size prudently."
When a client has already put real money into prediction markets before asking about it, Katz says his approach starts with curiosity rather than judgment. He wants to understand the size, purpose, and liquidity of the exposure, then determine whether it belongs inside or outside the client's overall risk budget.
"Prediction markets are event contracts tied to discrete outcomes, so the first priority is to determine whether the client treated them as speculation, hedging, or a mistaken substitute for investing," he said.
Kevin Thompson, founder and CEO of 9i Capital Group, takes the most direct position: any investment with the potential for a 100% loss based solely on the outcome of a single event fits the definition of gambling.
Thompson acknowledges a limited technical parallel to options contracts — both revolve around a specific outcome and can, in limited situations, be used to hedge risk. But for the vast majority of participants, betting on the outcome of an event is speculation, not investing. With traditional equities, shareholders retain a claim on underlying assets and future earnings, and may recover value through liquidation. Event contracts offer no such floor.
He also flags the access issue. Unlike many financial products, prediction market accounts require no accredited investor status. Anyone 18 or older can open a Kalshi account and begin trading with very little capital.
"That low barrier to entry often gives people the false impression that the risk is low when, in reality, they can lose 100% of what they put into a position," Thompson said.
The insider trading concern adds another layer. The CFTC issued an enforcement advisory in February 2026 following two enforcement cases involving misuse of nonpublic information on KalshiEX, and the U.S. Senate voted in April 2026 to ban its members from trading on prediction markets amid growing insider trading concerns.
"At the end of the day, prediction markets are no different than a coin flip, regardless of how they're marketed," Thompson said. "Unless someone has access to material, non-public information — which, judging by recent CFTC enforcement actions, is a real concern in some cases — you're speculating on an uncertain outcome, not making a traditional investment."
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