MW Is investing becoming more like gambling? Yes or no? Betting on the new retail trading craze.

By Gordon Gottsegen

A growing number of individual investors are gravitating to new products that are blurring the lines between investing and gambling

Savvas Avramidis is worried about the price of eggs - but not because their increasing cost will make his grocery haul unaffordable. The 35-year-old from Chicago has made a bet on the Kalshi prediction market that the price of eggs will go down.

"Will egg prices go up in Trump's first month in office?" is one of the "markets" that people are putting money on at Kalshi, and Avramidis is betting $2,443 that the answer will be "no."

When Avramidis decided to make the bet, he thought the semantics of the question on Kalshi were important. He noted that egg prices generally drop in February, and the results of the bet would be determined by data that the Bureau of Labor Statistics reports in mid-March on average egg prices in the months of January and February. That doesn't line up exactly with President Donald Trump's first month in office, so Avramidis believed that framing the question around Trump created a distraction that might trip up some bettors and make the odds better for him.

"I've learned with these event contracts that you really need to be a critical thinker and not jump to any sort of conclusion," Avramidis told MarketWatch.

A growing number of individual investors like Avramidis are leaning into risk, gravitating to new, riskier products offered by financial companies that are blurring the lines between investing and gambling. These include particularly perilous options contracts and meme coins, and now event contracts, which allow users to bet against one another about the outcome of certain episodes.

The rise in popularity of these products is fueled in part by the economic experiences of Gen Z and millennial men, who perceive that stable paths to prosperity have disappeared. The result is a growing culture around "degen" traders - an ironic riff off of the term "degenerate gambler" - who represent a societal shift in the way people view investing.

This behavior wouldn't be possible if it weren't for the financial companies that are making riskier trading strategies more accessible. Kalshi even moved in February to introduce event contracts on single-game sporting events, touting that it was bringing "100% legal sports trading to all 50 states," at a time when sportsbooks are not legal in every state. Since it's a financial exchange where people bet against each other - and not a betting sportsbook in which gamblers wager against the house - Kalshi noted that it's regulated by the Commodity Futures Trading Commission at the federal level and not by state gaming commissions.

Kalshi markets its event contracts as an "asset class" - but even some people who trade on the platform say it sounds more like gambling.

"Obviously this is not an investment," Ann Heslin, an investor from New York who used Kalshi to bet on the 2024 U.S. presidential election, said about event contracts. "It's adjacent to, 'Where can I put my money and and see what happens to it?'"

The gamblers

Before Avramidis was betting on egg prices, he was betting on sports. He said his first foray into sports betting began during the 2022 FIFA World Cup in Qatar; one of the first games he bet on featured Qatar's national team playing against Ecuador.

Before the game, Avramidis saw that Ecuador was designated the underdog by the sportsbooks, and that there were vague rumors that the Qataris would pay Ecuador to lose on their home turf. But for Avramidis, this made the Ecuadorian team a better bet for the higher return. He put his money on Ecuador, and won comfortably.

After a few years of sports betting, Avramidis first tried Kalshi in November 2024 as a way to make money off the outcome of the U.S. presidential election. Despite the new format, he took the same approach he had with sports betting to Kalshi. For Avramidis, this means placing bets when he thinks the expected value is lower than it should be. With the World Cup game, that meant betting on the underdog when they were objectively more competitive than the sportsbooks suggested.

Avramidis' most successful bet on Kalshi was a wager that Joe Biden would pardon his brother James before leaving office. The Kalshi market priced in a very low chance that Biden would pardon his brother, but after doing a couple hours of research, Avramidis thought a pardon was very much on the table. Avramidis bet $9,220 that Biden would pardon his brother, and won $27,456 when Biden issued the pardon with hours left in his presidency.

When asked if he considered these wagers on Kalshi investing or gambling, Avramidis said "it depends."

He said that when he used Kalshi to bet that the Philadelphia Eagles would win last month's Super Bowl, it was indeed gambling. He noted that sports tend to have many variable factors that could influence the outcome of the game, making it hard to say for certain what the result will be in the end. But he viewed his wager on the James Biden pardon more akin to investing, due to the research he conducted on the topic and how confident he was with his call.

The way Avramidis saw it, Republican Rep. James Comer of Kentucky had written a letter imploring Pam Bondi, the Trump administration's incoming attorney general, to prosecute James Biden - and President Biden would likely take care of his brother in the face of such calls.

"Markets like that, I don't consider gambling. I consider those markets educated decisions based off of facts," Avramidis said, adding that how an investor approaches decision-making determines whether someone is investing or gambling. "There's a fine line between this new stuff that we're doing in this generation versus the stock market and everything like that."

The pioneer of event contracts

Kalshi helped pioneer event contracts, a somewhat new financial product that allows traders to bet on future events with unknown outcomes. These contracts are binary, and traders are able to put money on the "yes" or "no" side of whether a future event will happen. If traders guess correctly, they win a sum of money based on the odds when they bought in. If their guess is wrong, they lose everything they wagered.

Egg prices aren't the only thing that people are using Kalshi to bet on. Other markets include "Will Trump declassify Epstein documents in his first 100 days?", "When will Dogecoin hit $1?" and "'A Minecraft Movie' Rotten Tomatoes score?"

In December 2024, Kalshi even allowed its customers to bet on several markets related to Luigi Mangione, the suspect in the shooting death of UnitedHealthcare's $(UNH)$ chief executive. This included "Did Luigi Mangione act alone?" and "Will Luigi Mangione plead guilty to murder?" Kalshi decided to take these markets down after pushback from regulators.

Kalshi's founder and CEO, Tarek Mansour, said in a video on YouTube last year that all new financial innovations are called "gambling" when they first emerge. Mansour and Kalshi declined to comment for this article.

Studies have shown that retail investors have been taking on more risk in their portfolios, including through event contracts and other products, since the pandemic-era investing boom. But this trend is particularly strong among millennial and Gen Z investors.

"It comes down to a structural issue that young people have - and particularly young men," Braden Dennis, chief executive of investment-research platform FinChat, told MarketWatch. "That cohort basically has no vision for how they are going to get rich like their parents did - so their desire to achieve and not be a failure pushes them way outside the risk spectrum. Now you have a 22-year-old with no experience trading extremely speculative assets like an option."

This behavioral shift has manifested in online communities like Reddit (RDDT), Discord and X. It's even become a meme for traders to refer to themselves as "degens." But despite such self-deprecating humor, there are societal forces at play that extend beyond the individual.

"This 'sports-betting-ification' has kind of transcribed into all areas of the market, whether it's crypto [or] even here in equity markets," Dennis said. "The mindset you hold when betting on the Super Bowl should not be the same mindset for betting on your equity portfolio."

Dennis believes some investors feel that taking on extra risk is their only shot at getting ahead because the financial cards are stacked against them.

"It's 'can't lose because I have nothing to lose,'" Naomi Win, a behavioral-finance analyst at financial planner Orion Advisor Solutions, told MarketWatch.

"The system feels to have failed them," said Win, who holds a doctorate in psychology. "That old tradition of, 'If you just follow this particular track, you'll reap the rewards' - which might align with more traditional investor thinking - that's already out the window. And if you can't steer the boat, why not rock it?"

Brendan Frazier, chief behavioral officer at RFG Advisory, a hybrid registered investment adviser, noted that the idea of speculative bets in the market is nothing new. But what is new is that technology has given retail investors wider access to different financial products. And on top of that, social media has given investors the ability to communicate with each other in a way that often creates a "fear of missing out," or "FOMO," on financial riches.

"Most of the stuff you see [on social media] are the success stories. And so that creates in your mind this idea of making it look easier than it actually is," Frazier said. "One of the things that fuels this is the power of FOMO."

The players

On the Monday before the Super Bowl last month, retail brokerage Robinhood Markets (HOOD) announced that it would let its customers trade event contracts based on the expected winner of the game.

MW Is investing becoming more like gambling? Yes or no? Betting on the new retail trading craze.

By Gordon Gottsegen

A growing number of individual investors are gravitating to new products that are blurring the lines between investing and gambling

Savvas Avramidis is worried about the price of eggs - but not because their increasing cost will make his grocery haul unaffordable. The 35-year-old from Chicago has made a bet on the Kalshi prediction market that the price of eggs will go down.

"Will egg prices go up in Trump's first month in office?" is one of the "markets" that people are putting money on at Kalshi, and Avramidis is betting $2,443 that the answer will be "no."

When Avramidis decided to make the bet, he thought the semantics of the question on Kalshi were important. He noted that egg prices generally drop in February, and the results of the bet would be determined by data that the Bureau of Labor Statistics reports in mid-March on average egg prices in the months of January and February. That doesn't line up exactly with President Donald Trump's first month in office, so Avramidis believed that framing the question around Trump created a distraction that might trip up some bettors and make the odds better for him.

"I've learned with these event contracts that you really need to be a critical thinker and not jump to any sort of conclusion," Avramidis told MarketWatch.

A growing number of individual investors like Avramidis are leaning into risk, gravitating to new, riskier products offered by financial companies that are blurring the lines between investing and gambling. These include particularly perilous options contracts and meme coins, and now event contracts, which allow users to bet against one another about the outcome of certain episodes.

The rise in popularity of these products is fueled in part by the economic experiences of Gen Z and millennial men, who perceive that stable paths to prosperity have disappeared. The result is a growing culture around "degen" traders - an ironic riff off of the term "degenerate gambler" - who represent a societal shift in the way people view investing.

This behavior wouldn't be possible if it weren't for the financial companies that are making riskier trading strategies more accessible. Kalshi even moved in February to introduce event contracts on single-game sporting events, touting that it was bringing "100% legal sports trading to all 50 states," at a time when sportsbooks are not legal in every state. Since it's a financial exchange where people bet against each other - and not a betting sportsbook in which gamblers wager against the house - Kalshi noted that it's regulated by the Commodity Futures Trading Commission at the federal level and not by state gaming commissions.

Kalshi markets its event contracts as an "asset class" - but even some people who trade on the platform say it sounds more like gambling.

"Obviously this is not an investment," Ann Heslin, an investor from New York who used Kalshi to bet on the 2024 U.S. presidential election, said about event contracts. "It's adjacent to, 'Where can I put my money and and see what happens to it?'"

The gamblers

Before Avramidis was betting on egg prices, he was betting on sports. He said his first foray into sports betting began during the 2022 FIFA World Cup in Qatar; one of the first games he bet on featured Qatar's national team playing against Ecuador.

Before the game, Avramidis saw that Ecuador was designated the underdog by the sportsbooks, and that there were vague rumors that the Qataris would pay Ecuador to lose on their home turf. But for Avramidis, this made the Ecuadorian team a better bet for the higher return. He put his money on Ecuador, and won comfortably.

After a few years of sports betting, Avramidis first tried Kalshi in November 2024 as a way to make money off the outcome of the U.S. presidential election. Despite the new format, he took the same approach he had with sports betting to Kalshi. For Avramidis, this means placing bets when he thinks the expected value is lower than it should be. With the World Cup game, that meant betting on the underdog when they were objectively more competitive than the sportsbooks suggested.

Avramidis' most successful bet on Kalshi was a wager that Joe Biden would pardon his brother James before leaving office. The Kalshi market priced in a very low chance that Biden would pardon his brother, but after doing a couple hours of research, Avramidis thought a pardon was very much on the table. Avramidis bet $9,220 that Biden would pardon his brother, and won $27,456 when Biden issued the pardon with hours left in his presidency.

When asked if he considered these wagers on Kalshi investing or gambling, Avramidis said "it depends."

He said that when he used Kalshi to bet that the Philadelphia Eagles would win last month's Super Bowl, it was indeed gambling. He noted that sports tend to have many variable factors that could influence the outcome of the game, making it hard to say for certain what the result will be in the end. But he viewed his wager on the James Biden pardon more akin to investing, due to the research he conducted on the topic and how confident he was with his call.

The way Avramidis saw it, Republican Rep. James Comer of Kentucky had written a letter imploring Pam Bondi, the Trump administration's incoming attorney general, to prosecute James Biden - and President Biden would likely take care of his brother in the face of such calls.

"Markets like that, I don't consider gambling. I consider those markets educated decisions based off of facts," Avramidis said, adding that how an investor approaches decision-making determines whether someone is investing or gambling. "There's a fine line between this new stuff that we're doing in this generation versus the stock market and everything like that."

The pioneer of event contracts

Kalshi helped pioneer event contracts, a somewhat new financial product that allows traders to bet on future events with unknown outcomes. These contracts are binary, and traders are able to put money on the "yes" or "no" side of whether a future event will happen. If traders guess correctly, they win a sum of money based on the odds when they bought in. If their guess is wrong, they lose everything they wagered.

Egg prices aren't the only thing that people are using Kalshi to bet on. Other markets include "Will Trump declassify Epstein documents in his first 100 days?", "When will Dogecoin hit $1?" and "'A Minecraft Movie' Rotten Tomatoes score?"

In December 2024, Kalshi even allowed its customers to bet on several markets related to Luigi Mangione, the suspect in the shooting death of UnitedHealthcare's (UNH) chief executive. This included "Did Luigi Mangione act alone?" and "Will Luigi Mangione plead guilty to murder?" Kalshi decided to take these markets down after pushback from regulators.

Kalshi's founder and CEO, Tarek Mansour, said in a video on YouTube last year that all new financial innovations are called "gambling" when they first emerge. Mansour and Kalshi declined to comment for this article.

Studies have shown that retail investors have been taking on more risk in their portfolios, including through event contracts and other products, since the pandemic-era investing boom. But this trend is particularly strong among millennial and Gen Z investors.

"It comes down to a structural issue that young people have - and particularly young men," Braden Dennis, chief executive of investment-research platform FinChat, told MarketWatch. "That cohort basically has no vision for how they are going to get rich like their parents did - so their desire to achieve and not be a failure pushes them way outside the risk spectrum. Now you have a 22-year-old with no experience trading extremely speculative assets like an option."

This behavioral shift has manifested in online communities like Reddit (RDDT), Discord and X. It's even become a meme for traders to refer to themselves as "degens." But despite such self-deprecating humor, there are societal forces at play that extend beyond the individual.

"This 'sports-betting-ification' has kind of transcribed into all areas of the market, whether it's crypto [or] even here in equity markets," Dennis said. "The mindset you hold when betting on the Super Bowl should not be the same mindset for betting on your equity portfolio."

Dennis believes some investors feel that taking on extra risk is their only shot at getting ahead because the financial cards are stacked against them.

"It's 'can't lose because I have nothing to lose,'" Naomi Win, a behavioral-finance analyst at financial planner Orion Advisor Solutions, told MarketWatch.

"The system feels to have failed them," said Win, who holds a doctorate in psychology. "That old tradition of, 'If you just follow this particular track, you'll reap the rewards' - which might align with more traditional investor thinking - that's already out the window. And if you can't steer the boat, why not rock it?"

Brendan Frazier, chief behavioral officer at RFG Advisory, a hybrid registered investment adviser, noted that the idea of speculative bets in the market is nothing new. But what is new is that technology has given retail investors wider access to different financial products. And on top of that, social media has given investors the ability to communicate with each other in a way that often creates a "fear of missing out," or "FOMO," on financial riches.

"Most of the stuff you see [on social media] are the success stories. And so that creates in your mind this idea of making it look easier than it actually is," Frazier said. "One of the things that fuels this is the power of FOMO."

The players

On the Monday before the Super Bowl last month, retail brokerage Robinhood Markets (HOOD) announced that it would let its customers trade event contracts based on the expected winner of the game.

MW Is investing becoming more like gambling? Yes -2-

"With an emerging asset class like event contracts, we recognize an opportunity to better serve our customers as their interests converge across the markets, news, sports, and entertainment," Robinhood wrote in a now-deleted blog post. "Event contracts for the Pro Football Championship leverage the power and rigor of financial market structure to facilitate greater liquidity, transparency, and price discovery."

In response, investor advocacy group Better Markets called the Super Bowl event contracts "nothing more than a backdoor attempt to allow gambling in regulated financial markets."

"The Commodity Exchange Act prohibits gaming contracts that the CFTC deems contrary to the public interest, and these Super Bowl betting contracts fall squarely into that category. Unlike traditional derivatives that help businesses manage risk, these sporting-event contracts serve no economic purpose and only fuel speculation," Cantrell Dumas, Better Markets' director of derivatives policy, told MarketWatch in an email.

'The mindset you hold when betting on the Super Bowl should not be the same mindset for betting on your equity portfolio.'Braden Dennis, FinChat CEO

Soon after, the CFTC caught wind of Robinhood's Super Bowl betting feature and asked the brokerage to "not permit customers to access" sports-related event contracts. Robinhood quickly complied with the federal regulator's request, but the company did say it was "disappointed."

It's easy to see why Robinhood would like to offer such a product. The brokerage first experimented with event contracts when it allowed customers to bet on the winner of the 2024 U.S. presidential election. Despite the fact that Robinhood only offered these contracts in the week before Election Day, its customers traded about 500 million of them. Since Robinhood charges a $0.01 commission per contract, the brokerage generated $5 million from the election bets. While $5 million may be a fraction of the $1 billion in revenue the company posted in the last three months of 2024, it was the first time Robinhood had ever offered event contracts, and they were only available for one week.

Read: Brokerages are raking in millions from your presidential election bets

And it's not just Robinhood. More companies on Wall Street and beyond are tapping into the gambler mentality that has affected the way individual investors approach the market, and are developing products to cash in.

Data from J.P. Morgan show that retail investors accounted for about 20% of the options market in November 2024, the highest percentage going back to 2021. The data also found that individual investors were trading more "zero-days-to-expiration" options than longer-dated options for the three major stock indexes and corresponding exchange-traded funds that track them. These "0DTE" options, as they have become known, are much riskier than longer-dated options due to their rapid decay; if investors don't enter and exit their 0DTE options contracts at the right time, there's a good chance that they expire worthless.

Retail investors have shown increasing interest in leveraged exchange-traded funds, too. These ETFs are constructed using financial derivatives that multiply the potential gains - and losses. They also tend to come with higher fees and increased volatility, making them riskier than other ETFs that provide diversified exposure to different equities. Data from Vanda Research show that retail-investor buying of leveraged ETFs have often outpaced buying of their nonleveraged counterparts.

Then there's cryptocurrencies and meme coins. While many supporters argue for the use cases of major tokens like bitcoin (BTCUSD) and ether (ETHUSD), it's harder to do so for the countless meme coins that pop up every day. Crypto analysis site CoinGecko estimates that there were recently 5.4 million tokens being traded - a significant jump from the 2.5 million estimated in April 2024 and only 440,000 around the end of 2021.

In a 2024 report, CryptoMarketCap noted that retail investors were turning away from crypto projects tied to real-world assets as well as technological narratives like artificial intelligence, instead opting to buy meme projects in order to push valuations higher. "Retail investors seem to have shifted their attention and funds towards the meme-coin supercycle, gambling at the 'culture casino' where projects are launched at low valuations," the CMC Research team wrote.

'The bet-on-anything market'

Robinhood is now planning to make an even bigger bet on event contracts. In a recent earnings call, Chief Financial Officer Jason Warnick said the company planned to launch a dedicated event-contracts platform this year. Robinhood CEO Vlad Tenev then went on CNBC and said that "prediction markets are the future," adding: "We're going to be going big and we're going to be a leader there."

In that CNBC interview, Tenev said that Robinhood's sports contracts are different from standard sports betting - noting that they are regulated by the CFTC and that investors would be betting against each other instead of the house. Robinhood also said discussions with its customers showed they were excited about event contracts.

Other big Wall Street brokerages are also making plans to offer event contracts. Interactive Brokers Group $(IBKR)$ helped lead the adoption of event contracts in the brokerage industry by launching a subsidiary event-contract exchange, ForecastEx, last year.

ForecastEx allows Interactive Brokers to offer event contracts on its own platform, but it also processes event-contract trades for other brokerages, too. This included Robinhood, which went through ForecastEx for its election contracts. In that instance, both Robinhood and ForecastEx charged $0.01 per contract, meaning the two financial companies each made $5 million on the election bets placed by Robinhood's customers in the week leading up to the election.

Interactive Brokers founder Thomas Peterffy - whose estimated $61 billion net worth makes him one of the richest people on Wall Street - told MarketWatch in November that he thinks prediction markets will be bigger than the stock market. If that prediction becomes true, it could be very lucrative for Interactive Brokers, which currently has a market capitalization of around $90 billion. Interactive Brokers did not provide data on how large its event-contracts business is when requested by MarketWatch.

"The prediction markets are going slowly. We are being very careful not to step on the wrong foot. And we believe that this is going to be a huge market, but we want to do it slowly and carefully and build out our personnel and our systems so that we can do it in a really, really big way," Peterffy said during a recent earnings call with investors.

For players like Interactive Brokers, event contracts essentially put their Wall Street brokerages in direct competition with sports-betting companies like DraftKings $(DKNG)$ and FanDuel $(FLUT)$, as well as other prediction markets like Polymarket. Americans have gambled over $420 billion on sports since the federal ban on sports betting was lifted in 2018, and Goldman Sachs recently projected that sports betting could become a $45 billion industry. Meanwhile, traders bet about $3.7 billion on the 2024 presidential election on Polymarket.

Because brokerages are able to take a percentage of every event contract traded on their platforms, FinChat's Dennis argues that event contracts are too lucrative for these companies to ignore. He predicts that every brokerage and financial institution that serves retail investors will want to move into the event-contracts space - or as he calls it, "the bet-on-anything market."

WeBull, a small retail brokerage, recently announced that it's partnering with Kalshi to offer event contracts on its platform. WeBull didn't disclose the exact types of event contract it'll be offering, but did say they would be related to economic and finance events, not sports. Even Coinbase $(COIN)$, the big U.S. cryptocurrency exchange, has indicated an interest in prediction markets.

"It's no longer an event. Rather, it's 'Hey, there's a bet to be made, there's a gamble to be made.' This Vegas-ification of the world that you live in," Dennis told MarketWatch. "All retail platforms will touch it because the spreads are too juicy to not go after."

The CFTC has noted "a significant increase in the number of event contracts listed for trading by CFTC-registered exchanges" since 2021. From 2006 to 2020, designated contract markets were listing an average of five event-contract markets a year. In 2021, that number jumped to 131 and stayed elevated through 2024. The regulator also said that it was reviewing "several" pending applications for more financial institutions to start trading the new asset class.

While the CFTC has pushed back against certain event contracts in the past - like the Super Bowl contracts on Robinhood and the Luigi Mangione contracts on Kalshi - the regulatory environment for financial companies is currently going through some major changes.

President Trump loosened regulations for big banks during his first term, and his second term has already seen several initiatives for further deregulation across the financial industry. Those include freezing the work done by the Consumer Financial Protection Bureau, and appointing a new chair at the Securities and Exchange Commission who is seen as friendly to Wall Street and the cryptocurrency industry. With last year's Supreme Court ruling on the Chevron doctrine, the SEC and other financial regulators may have a harder time enforcing rules on Wall Street firms.

MW Is investing becoming more like gambling? Yes or no? Betting on the new retail trading craze.

By Gordon Gottsegen

A growing number of individual investors are gravitating to new products that are blurring the lines between investing and gambling

Savvas Avramidis is worried about the price of eggs - but not because their increasing cost will make his grocery haul unaffordable. The 35-year-old from Chicago has made a bet on the Kalshi prediction market that the price of eggs will go down.

"Will egg prices go up in Trump's first month in office?" is one of the "markets" that people are putting money on at Kalshi, and Avramidis is betting $2,443 that the answer will be "no."

When Avramidis decided to make the bet, he thought the semantics of the question on Kalshi were important. He noted that egg prices generally drop in February, and the results of the bet would be determined by data that the Bureau of Labor Statistics reports in mid-March on average egg prices in the months of January and February. That doesn't line up exactly with President Donald Trump's first month in office, so Avramidis believed that framing the question around Trump created a distraction that might trip up some bettors and make the odds better for him.

"I've learned with these event contracts that you really need to be a critical thinker and not jump to any sort of conclusion," Avramidis told MarketWatch.

A growing number of individual investors like Avramidis are leaning into risk, gravitating to new, riskier products offered by financial companies that are blurring the lines between investing and gambling. These include particularly perilous options contracts and meme coins, and now event contracts, which allow users to bet against one another about the outcome of certain episodes.

The rise in popularity of these products is fueled in part by the economic experiences of Gen Z and millennial men, who perceive that stable paths to prosperity have disappeared. The result is a growing culture around "degen" traders - an ironic riff off of the term "degenerate gambler" - who represent a societal shift in the way people view investing.

This behavior wouldn't be possible if it weren't for the financial companies that are making riskier trading strategies more accessible. Kalshi even moved in February to introduce event contracts on single-game sporting events, touting that it was bringing "100% legal sports trading to all 50 states," at a time when sportsbooks are not legal in every state. Since it's a financial exchange where people bet against each other - and not a betting sportsbook in which gamblers wager against the house - Kalshi noted that it's regulated by the Commodity Futures Trading Commission at the federal level and not by state gaming commissions.

Kalshi markets its event contracts as an "asset class" - but even some people who trade on the platform say it sounds more like gambling.

"Obviously this is not an investment," Ann Heslin, an investor from New York who used Kalshi to bet on the 2024 U.S. presidential election, said about event contracts. "It's adjacent to, 'Where can I put my money and and see what happens to it?'"

The gamblers

Before Avramidis was betting on egg prices, he was betting on sports. He said his first foray into sports betting began during the 2022 FIFA World Cup in Qatar; one of the first games he bet on featured Qatar's national team playing against Ecuador.

Before the game, Avramidis saw that Ecuador was designated the underdog by the sportsbooks, and that there were vague rumors that the Qataris would pay Ecuador to lose on their home turf. But for Avramidis, this made the Ecuadorian team a better bet for the higher return. He put his money on Ecuador, and won comfortably.

After a few years of sports betting, Avramidis first tried Kalshi in November 2024 as a way to make money off the outcome of the U.S. presidential election. Despite the new format, he took the same approach he had with sports betting to Kalshi. For Avramidis, this means placing bets when he thinks the expected value is lower than it should be. With the World Cup game, that meant betting on the underdog when they were objectively more competitive than the sportsbooks suggested.

Avramidis' most successful bet on Kalshi was a wager that Joe Biden would pardon his brother James before leaving office. The Kalshi market priced in a very low chance that Biden would pardon his brother, but after doing a couple hours of research, Avramidis thought a pardon was very much on the table. Avramidis bet $9,220 that Biden would pardon his brother, and won $27,456 when Biden issued the pardon with hours left in his presidency.

When asked if he considered these wagers on Kalshi investing or gambling, Avramidis said "it depends."

He said that when he used Kalshi to bet that the Philadelphia Eagles would win last month's Super Bowl, it was indeed gambling. He noted that sports tend to have many variable factors that could influence the outcome of the game, making it hard to say for certain what the result will be in the end. But he viewed his wager on the James Biden pardon more akin to investing, due to the research he conducted on the topic and how confident he was with his call.

The way Avramidis saw it, Republican Rep. James Comer of Kentucky had written a letter imploring Pam Bondi, the Trump administration's incoming attorney general, to prosecute James Biden - and President Biden would likely take care of his brother in the face of such calls.

"Markets like that, I don't consider gambling. I consider those markets educated decisions based off of facts," Avramidis said, adding that how an investor approaches decision-making determines whether someone is investing or gambling. "There's a fine line between this new stuff that we're doing in this generation versus the stock market and everything like that."

The pioneer of event contracts

Kalshi helped pioneer event contracts, a somewhat new financial product that allows traders to bet on future events with unknown outcomes. These contracts are binary, and traders are able to put money on the "yes" or "no" side of whether a future event will happen. If traders guess correctly, they win a sum of money based on the odds when they bought in. If their guess is wrong, they lose everything they wagered.

Egg prices aren't the only thing that people are using Kalshi to bet on. Other markets include "Will Trump declassify Epstein documents in his first 100 days?", "When will Dogecoin hit $1?" and "'A Minecraft Movie' Rotten Tomatoes score?"

In December 2024, Kalshi even allowed its customers to bet on several markets related to Luigi Mangione, the suspect in the shooting death of UnitedHealthcare's (UNH) chief executive. This included "Did Luigi Mangione act alone?" and "Will Luigi Mangione plead guilty to murder?" Kalshi decided to take these markets down after pushback from regulators.

Kalshi's founder and CEO, Tarek Mansour, said in a video on YouTube last year that all new financial innovations are called "gambling" when they first emerge. Mansour and Kalshi declined to comment for this article.

Studies have shown that retail investors have been taking on more risk in their portfolios, including through event contracts and other products, since the pandemic-era investing boom. But this trend is particularly strong among millennial and Gen Z investors.

"It comes down to a structural issue that young people have - and particularly young men," Braden Dennis, chief executive of investment-research platform FinChat, told MarketWatch. "That cohort basically has no vision for how they are going to get rich like their parents did - so their desire to achieve and not be a failure pushes them way outside the risk spectrum. Now you have a 22-year-old with no experience trading extremely speculative assets like an option."

This behavioral shift has manifested in online communities like Reddit (RDDT), Discord and X. It's even become a meme for traders to refer to themselves as "degens." But despite such self-deprecating humor, there are societal forces at play that extend beyond the individual.

"This 'sports-betting-ification' has kind of transcribed into all areas of the market, whether it's crypto [or] even here in equity markets," Dennis said. "The mindset you hold when betting on the Super Bowl should not be the same mindset for betting on your equity portfolio."

Dennis believes some investors feel that taking on extra risk is their only shot at getting ahead because the financial cards are stacked against them.

"It's 'can't lose because I have nothing to lose,'" Naomi Win, a behavioral-finance analyst at financial planner Orion Advisor Solutions, told MarketWatch.

"The system feels to have failed them," said Win, who holds a doctorate in psychology. "That old tradition of, 'If you just follow this particular track, you'll reap the rewards' - which might align with more traditional investor thinking - that's already out the window. And if you can't steer the boat, why not rock it?"

Brendan Frazier, chief behavioral officer at RFG Advisory, a hybrid registered investment adviser, noted that the idea of speculative bets in the market is nothing new. But what is new is that technology has given retail investors wider access to different financial products. And on top of that, social media has given investors the ability to communicate with each other in a way that often creates a "fear of missing out," or "FOMO," on financial riches.

"Most of the stuff you see [on social media] are the success stories. And so that creates in your mind this idea of making it look easier than it actually is," Frazier said. "One of the things that fuels this is the power of FOMO."

The players

On the Monday before the Super Bowl last month, retail brokerage Robinhood Markets (HOOD) announced that it would let its customers trade event contracts based on the expected winner of the game.

(MORE TO FOLLOW) Dow Jones Newswires

March 04, 2025 07:00 ET (12:00 GMT)

MW Is investing becoming more like gambling? Yes -2-

"With an emerging asset class like event contracts, we recognize an opportunity to better serve our customers as their interests converge across the markets, news, sports, and entertainment," Robinhood wrote in a now-deleted blog post. "Event contracts for the Pro Football Championship leverage the power and rigor of financial market structure to facilitate greater liquidity, transparency, and price discovery."

In response, investor advocacy group Better Markets called the Super Bowl event contracts "nothing more than a backdoor attempt to allow gambling in regulated financial markets."

"The Commodity Exchange Act prohibits gaming contracts that the CFTC deems contrary to the public interest, and these Super Bowl betting contracts fall squarely into that category. Unlike traditional derivatives that help businesses manage risk, these sporting-event contracts serve no economic purpose and only fuel speculation," Cantrell Dumas, Better Markets' director of derivatives policy, told MarketWatch in an email.

'The mindset you hold when betting on the Super Bowl should not be the same mindset for betting on your equity portfolio.'Braden Dennis, FinChat CEO

Soon after, the CFTC caught wind of Robinhood's Super Bowl betting feature and asked the brokerage to "not permit customers to access" sports-related event contracts. Robinhood quickly complied with the federal regulator's request, but the company did say it was "disappointed."

It's easy to see why Robinhood would like to offer such a product. The brokerage first experimented with event contracts when it allowed customers to bet on the winner of the 2024 U.S. presidential election. Despite the fact that Robinhood only offered these contracts in the week before Election Day, its customers traded about 500 million of them. Since Robinhood charges a $0.01 commission per contract, the brokerage generated $5 million from the election bets. While $5 million may be a fraction of the $1 billion in revenue the company posted in the last three months of 2024, it was the first time Robinhood had ever offered event contracts, and they were only available for one week.

Read: Brokerages are raking in millions from your presidential election bets

And it's not just Robinhood. More companies on Wall Street and beyond are tapping into the gambler mentality that has affected the way individual investors approach the market, and are developing products to cash in.

Data from J.P. Morgan show that retail investors accounted for about 20% of the options market in November 2024, the highest percentage going back to 2021. The data also found that individual investors were trading more "zero-days-to-expiration" options than longer-dated options for the three major stock indexes and corresponding exchange-traded funds that track them. These "0DTE" options, as they have become known, are much riskier than longer-dated options due to their rapid decay; if investors don't enter and exit their 0DTE options contracts at the right time, there's a good chance that they expire worthless.

Retail investors have shown increasing interest in leveraged exchange-traded funds, too. These ETFs are constructed using financial derivatives that multiply the potential gains - and losses. They also tend to come with higher fees and increased volatility, making them riskier than other ETFs that provide diversified exposure to different equities. Data from Vanda Research show that retail-investor buying of leveraged ETFs have often outpaced buying of their nonleveraged counterparts.

Then there's cryptocurrencies and meme coins. While many supporters argue for the use cases of major tokens like bitcoin (BTCUSD) and ether (ETHUSD), it's harder to do so for the countless meme coins that pop up every day. Crypto analysis site CoinGecko estimates that there were recently 5.4 million tokens being traded - a significant jump from the 2.5 million estimated in April 2024 and only 440,000 around the end of 2021.

In a 2024 report, CryptoMarketCap noted that retail investors were turning away from crypto projects tied to real-world assets as well as technological narratives like artificial intelligence, instead opting to buy meme projects in order to push valuations higher. "Retail investors seem to have shifted their attention and funds towards the meme-coin supercycle, gambling at the 'culture casino' where projects are launched at low valuations," the CMC Research team wrote.

'The bet-on-anything market'

Robinhood is now planning to make an even bigger bet on event contracts. In a recent earnings call, Chief Financial Officer Jason Warnick said the company planned to launch a dedicated event-contracts platform this year. Robinhood CEO Vlad Tenev then went on CNBC and said that "prediction markets are the future," adding: "We're going to be going big and we're going to be a leader there."

In that CNBC interview, Tenev said that Robinhood's sports contracts are different from standard sports betting - noting that they are regulated by the CFTC and that investors would be betting against each other instead of the house. Robinhood also said discussions with its customers showed they were excited about event contracts.

Other big Wall Street brokerages are also making plans to offer event contracts. Interactive Brokers Group (IBKR) helped lead the adoption of event contracts in the brokerage industry by launching a subsidiary event-contract exchange, ForecastEx, last year.

ForecastEx allows Interactive Brokers to offer event contracts on its own platform, but it also processes event-contract trades for other brokerages, too. This included Robinhood, which went through ForecastEx for its election contracts. In that instance, both Robinhood and ForecastEx charged $0.01 per contract, meaning the two financial companies each made $5 million on the election bets placed by Robinhood's customers in the week leading up to the election.

Interactive Brokers founder Thomas Peterffy - whose estimated $61 billion net worth makes him one of the richest people on Wall Street - told MarketWatch in November that he thinks prediction markets will be bigger than the stock market. If that prediction becomes true, it could be very lucrative for Interactive Brokers, which currently has a market capitalization of around $90 billion. Interactive Brokers did not provide data on how large its event-contracts business is when requested by MarketWatch.

"The prediction markets are going slowly. We are being very careful not to step on the wrong foot. And we believe that this is going to be a huge market, but we want to do it slowly and carefully and build out our personnel and our systems so that we can do it in a really, really big way," Peterffy said during a recent earnings call with investors.

For players like Interactive Brokers, event contracts essentially put their Wall Street brokerages in direct competition with sports-betting companies like DraftKings (DKNG) and FanDuel (FLUT), as well as other prediction markets like Polymarket. Americans have gambled over $420 billion on sports since the federal ban on sports betting was lifted in 2018, and Goldman Sachs recently projected that sports betting could become a $45 billion industry. Meanwhile, traders bet about $3.7 billion on the 2024 presidential election on Polymarket.

Because brokerages are able to take a percentage of every event contract traded on their platforms, FinChat's Dennis argues that event contracts are too lucrative for these companies to ignore. He predicts that every brokerage and financial institution that serves retail investors will want to move into the event-contracts space - or as he calls it, "the bet-on-anything market."

WeBull, a small retail brokerage, recently announced that it's partnering with Kalshi to offer event contracts on its platform. WeBull didn't disclose the exact types of event contract it'll be offering, but did say they would be related to economic and finance events, not sports. Even Coinbase (COIN), the big U.S. cryptocurrency exchange, has indicated an interest in prediction markets.

"It's no longer an event. Rather, it's 'Hey, there's a bet to be made, there's a gamble to be made.' This Vegas-ification of the world that you live in," Dennis told MarketWatch. "All retail platforms will touch it because the spreads are too juicy to not go after."

The CFTC has noted "a significant increase in the number of event contracts listed for trading by CFTC-registered exchanges" since 2021. From 2006 to 2020, designated contract markets were listing an average of five event-contract markets a year. In 2021, that number jumped to 131 and stayed elevated through 2024. The regulator also said that it was reviewing "several" pending applications for more financial institutions to start trading the new asset class.

While the CFTC has pushed back against certain event contracts in the past - like the Super Bowl contracts on Robinhood and the Luigi Mangione contracts on Kalshi - the regulatory environment for financial companies is currently going through some major changes.

President Trump loosened regulations for big banks during his first term, and his second term has already seen several initiatives for further deregulation across the financial industry. Those include freezing the work done by the Consumer Financial Protection Bureau, and appointing a new chair at the Securities and Exchange Commission who is seen as friendly to Wall Street and the cryptocurrency industry. With last year's Supreme Court ruling on the Chevron doctrine, the SEC and other financial regulators may have a harder time enforcing rules on Wall Street firms.

(MORE TO FOLLOW) Dow Jones Newswires

March 04, 2025 07:00 ET (12:00 GMT)

MW Is investing becoming more like gambling? Yes -3-

"This means the SEC will be fighting with one hand tied behind its back, constantly dragged into legal battles by firms looking to challenge its authority," said Kairong Xiao, a professor at Columbia Business School. "As regulatory agencies now have less power to enforce regulations, together with the broad deregulation agenda of the incoming administration, regulators will be less willing to propose new rules as they could lead to more legal issues."

-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

March 04, 2025 07:00 ET (12:00 GMT)

Copyright (c) 2025 Dow Jones & Company, Inc.