Retail investors keep finding new ways to bet. Five years ago it was meme stocks, then it was crypto, then it was zero-day options.
Now it's prediction markets.
Combined notional volume on Kalshi and Polymarket sat above $24 billion in April, according to Dune Analytics, up from under $5 billion a year earlier. The Barclays analysts traced the breakout back to the 2024 presidential election, when prediction market volumes started climbing fast and never stopped.
Barclays analysts called prediction markets "retail's shiny new toy" in a note Tuesday, with monthly volume now close to that of leveraged exchange-traded products. Those are high-risk products that use leverage and derivatives to amplify daily returns on a single asset.
Most of the trading volume isn't on financial bets. It's on sports, with sports contracts making up the bulk of the action on both Kalshi and Polymarket.
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Jeff Kilburg, founder and CEO of KKM Financial, said the appeal is how simple the bets are, with most prediction market contracts running on yes-or-no events covering everything from sports to politics to economic data.
"It's a totally different animal," he said.
The growth is being driven by younger investors, with a Northwestern Mutual study earlier this year finding that nearly a third of Gen Z and almost a quarter of millennials are either putting money into prediction markets and sports betting or considering it.
Kilburg sees prediction markets as a bridge, where new traders can use them to get comfortable with markets before moving on to options.
"It excites me," Kilburg said. "The more people in the market, the better."
Even at $24 billion a month, prediction markets are dwarfed by 0DTE options, which expire on the same day they're bought. In March alone, S&P 500 0DTE options had nearly $57 trillion in total value traded.
0DTE options took off after Cboe Global Markets launched them on the S&P 500 in early 2023. Retail traders now make up most of that volume, which is responsible for more than half of all S&P options trading.
Prediction markets are growing fast, but they're not in the same league yet.
Kilburg doesn't think the AI bubble is what's powering the move. He chalks it up to the viral appeal of binary, easy-to-understand bets with younger crowds.
Volume is the metric to follow. If Kalshi and Polymarket keep doubling year over year, the next stop is competing with leveraged ETPs head-on.
Regulators will also be watching, since prediction markets sit in a gray zone between investing and betting. How that gets sorted out could shape the next phase of growth.
The newer the toy, the harder it is to predict how long retail keeps playing with it.
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