Prediction markets look to institutional investors for next phase of growth

• Kalshi executed its first customized block trade and is partnering with brokers like Clear Street and Marex to provide institutional access, while firms like AQR and Susquehanna are hiring prediction market specialists
• Experts warn that markets need at least $10 million in daily notional volume to attract hedge funds, but top Polymarket markets currently have only about $30 million total liquidity
• Institutions are using prediction markets to hedge specific risks like monthly payroll data outcomes, often taking offsetting positions on the same platform with contracts exceeding several million dollars

Prediction Markets Target Institutional Investors Amid Growth Phase

Prediction market platforms, led by Kalshi and Polymarket, are aggressively pursuing institutional investors and hedge funds as their next growth opportunity, moving beyond their retail trader base. However, liquidity concerns pose significant challenges to widespread institutional adoption.

Key Developments

Kalshi has achieved notable growth, with annualized trading volumes exceeding $178 billion—more than tripling over six months. Institutional trading volumes surged 800% during the same period, driven by asset managers, hedge funds, and prime brokerages. The platform recently executed its first customized block trade and is targeting larger institutions.

Institutional clients primarily trade contracts tied to scheduled events like monthly payroll data, with some contracts exceeding several million dollars. These investors typically hedge positions by taking offsetting trades on the same platform.

Infrastructure Partnerships

To facilitate institutional access, prediction markets are partnering with traditional finance intermediaries. Clear Street recently partnered with Kalshi to provide institutional access, while proprietary trading firm Jump Trading is connecting asset managers and hedge funds to these platforms. London-based broker Marex is working with both Kalshi and Polymarket to build infrastructure connecting investors to these exchanges.

Major quantitative firms including AQR Capital Management, Susquehanna International Group, and crypto exchange OKX have advertised specialist prediction market trader positions.

Liquidity Challenges

Analysts warn that shallow order books and limited liquidity remain critical obstacles. Polymarket's top markets have approximately $30 million in total liquidity, meaning multi-million-dollar institutional trades could cause severe price swings. Experts note institutional adoption requires minimum $10 million daily notional volumes.

Despite current limitations, industry observers believe prediction markets are "increasingly being treated as a legitimate alternative asset class" for hedging specific risks traditional instruments only capture indirectly.