Hedge funds are about to jump into prediction markets in a big way

Cantor Fitzgerald will be one of the first investment firms providing its clients institutional trading on prediction market platform Kalshi, the company announced Wednesday morning.

“Prediction markets are growing rapidly, but institutional participation has not kept pace because investors have lacked the ability to transact at scale on a regulated exchange. The liquidity is here,” said Pascal Bandelier, co-CEO and global head of equities at Cantor in a press release.

The global investment firm will serve as a broker, meaning it will organize the block trades on Kalshi’s event contracts for its clients. Block trades are large, privately negotiated transactions that are typically executed outside of a public market to avoid price volatility, and are a feature of trading by large Wall Street firms. 

Susquehanna International Group will provide pricing and liquidity as a market maker in these trades with Cantor’s clients. The company’s head of business development, Joe Grubb, sees institutional risk transfer as the next step for prediction markets’ material growth. 

Cantor first reached out to Kalshi a few months back, Kalshi spokesperson Elisabeth Diana said. The global investment bank can also request that the prediction market design new markets for clients to trade on.

“We will submit it to the CFTC and we have to make sure there is enough liquidity,” Diana said. Clients would be interested in Kalshi’s climate, weather and economic indicator markets, she added. 

The Wall Street Journal first reported on the arrangement. 

Wednesday’s announcement marks the latest move by Kalshi to appeal to Wall Street. The company has increasingly focused on professional investors even as retail traders up until now have driven its rise, primarily trading on the platform’s sports-related event contracts. 

Kalshi completed the first block trade on an event contract exchange back in April, and has announced a series of partnerships and internal initiatives this year to give institutional clients comfort with participating in a novel asset class. 

Disclosure: CNBC and Kalshi have a commercial relationship that includes customer acquisition and a minority investment.