Prediction market platforms like Kalshi and Polymarket are shifting their focus from retail traders to institutional investors, aiming to attract deep-pocketed hedge funds and asset managers. These financial institutions are drawn to event contracts because they offer a precise, real-time method to isolate and hedge specific risks—such as monthly payroll data—without the noise of traditional financial products.

To facilitate this transition, platforms are partnering with prime brokers and liquidity providers. Firms like Clear Street and Marex are building the necessary infrastructure to connect institutions to these exchanges, while proprietary trading firms like Jump Trading are facilitating access. Additionally, major quantitative firms, including AQR Capital Management and Susquehanna International Group, have begun scouting for specialist prediction market traders, signaling that these platforms are increasingly viewed as a legitimate alternative asset class.

Kalshi, in particular, reports that its annualized trading volumes have tripled over the past six months to $178 billion, driven by an 800% surge in institutional volume. The platform also recently executed its first customized block trade.

Despite this momentum, significant adoption hurdles remain. Analysts warn that shallow order books and limited liquidity pose major risks for large-scale investors. For instance, some of the top markets on Polymarket hold only about $30 million in total liquidity. Industry experts note that a single multi-million-dollar institutional trade could cause wild price swings, leading some to conclude that while institutional interest is high, consistent, large-scale activity is still in its infancy. Kalshi is actively trying to resolve this bottleneck by aggressively onboarding more institutions to naturally deepen its liquidity pools.

End Notes

Source: https://www.reuters.com/legal/government/prediction-markets-look-institutional-investors-next-phase-growth-2026-05-27/