If the March Madness office betting pool doesn’t quite scratch your itch for action, Robinhood’s (HOOD) got you covered.
This week, the broker launched a prediction markets trading platform in the Robinhood app, enabling customers to “engage with events that align with their interests” by trading contracts on the outcome of specific real-world events.
Not into sportsball? You can also wager on May’s target fed funds rate in Robinhood’s new prediction market hub. Entertainment, politics, the economy and other hotly debated water-cooler topics are sure to follow.
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What is events trading?
The grownup term for events trading is derivatives trading, which involves buying a contract whose value is derived from the value of an underlying asset or even another derivative. (This derivatives explainer expertly unpacks the previous sentence.)
Essentially, derivatives are a side bet between market participants on what’s going to happen. Event contracts in particular are structured around “yes” or “no” outcomes, with the price of the contract based on the likelihood of the event’s outcome.
If you’re right, the contract will pay out $1 (minus commissions and fees). Otherwise, the contract expires worthless.
There are multiple kinds of derivatives, including options, futures, forwards and swaps — as in credit default swaps, which were at the center of the global financial crisis in 2008-2009.
Robinhood prediction contracts will initially be available in the U.S. through KalshiEX, an event-based exchange that operates under Commodity Futures Trading Commission (CFTC) regulations. Side note: KalshiEX successfully sued the CFTC in 2024 for rejecting its proposal to use derivative contracts to bet on congressional control.
Robinhood’s taking its second shot
This isn’t Robinhood’s first foray into the predictions market. In 2024, the broker allowed customers to trade on the outcome of the presidential election. Earlier this year, at the request of the CFTC, Robinhood called off a wider launch of event trading organized around the Super Bowl.
KalshiEX’s successful suit against the CFTC — as well as a looser regulatory environment — plays in Robinhood’s favor this go-round. So does the broker’s rep for undercutting competitors’ fees.
Robinhood customers pay a 1 cent per contract trading commission when they buy or sell an event contract, as well as a per-contract exchange fee (typically 1 cent) and, if applicable, a spread (also typically 1 cent), according to Robinhood. For comparison, Interactive Brokers, which launched event trading in 2022, charges a flat fee of 10 cents per contract.
Access to events trading requires being approved for a Robinhood Derivatives account and is only available to U.S. citizens with an individual Robinhood investing account with either options trading approval (level 2 or 3) or one that’s margin investing enabled.
Bottom line
Betting on the outcome of a basketball game, election or movie’s Rotten Tomatoes rating is not investing, even if you’re doing it on a legitimate investing platform. And while it’s certainly true that there are similarities between options trading and sports betting, smart gamblers only play with money they can spare to lose.
Editorial Disclaimer: All investors are advised to conduct their own independent research into investment strategies before making an investment decision. In addition, investors are advised that past investment product performance is no guarantee of future price appreciation.
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