Why Are Traditional Finance Firms Looking at Prediction Markets?
Traditional finance firms Charles Schwab and Citadel Securities are assessing potential entry into prediction markets, as trading volumes accelerate and institutional use cases begin to take shape. Both firms are approaching the sector cautiously, evaluating where it fits within their broader business models.
“I think at some point we likely will have prediction markets,” said Rick Wurster, chief executive of Charles Schwab, during a call with investors. He added that the firm would “take a hard look” at the space and that offering such products would be operationally straightforward.
Prediction markets, including platforms such as Kalshi and Polymarket, have seen rapid growth in recent months. Combined monthly trading volumes reached $23.6 billion in March, according to Token Terminal, reflecting rising demand for event-driven trading instruments tied to real-world outcomes.
The expansion is drawing attention from established financial institutions, particularly as these markets begin to resemble structured financial products rather than niche retail speculation tools.
How Are Schwab and Citadel Approaching the Opportunity?
Schwab’s approach appears selective. Wurster said prediction markets have not yet generated strong interest among the firm’s clients, and indicated that any future offering would avoid categories such as sports, politics, or entertainment.
“Prediction markets that are not aligned to that are not something that we want to pursue,” he said. “If you look at the stats on the success of gamblers, they’re not strong, and people generally lose money.”
The firm is positioning any potential involvement around long-term wealth building, suggesting it may focus on contracts tied to macroeconomic or financial outcomes rather than high-frequency speculative events.
Citadel Securities is taking a similarly measured stance. President Jim Esposito said the firm is “absolutely keeping an eye on developments” but noted that current market liquidity remains limited.
“We’re not there yet, there’s not that much liquidity,” he said, adding that the market is likely to “ramp and scale” and that participation is “certainly possible” over time.
Investor Takeaway
Can Prediction Markets Serve as Hedging Tools?
Citadel’s interest centers on the potential for prediction markets to function as hedging instruments. Esposito pointed to event contracts linked to elections and macro developments as examples of risks that can materially impact portfolios.
“That’s going to be some of the biggest risks to investors’ portfolios that they’re going to have to grapple with,” he said. “Having a clean and distinct way to hedge certain risks, I think there’s a good use case and industrial logic to it.”
This framing moves prediction markets closer to traditional derivatives, where contracts are used to manage exposure rather than generate speculative returns. It also aligns with broader institutional requirements for structured, transparent, and liquid instruments.
At the same time, Citadel signaled it is not currently exploring sports-related contracts, reinforcing a divide between entertainment-driven markets and financially relevant event contracts.
Investor Takeaway
What Risks Could Slow Institutional Adoption?
Regulatory pressure remains a key constraint. Several US state regulators have challenged prediction market platforms, arguing that certain contracts resemble unlicensed sports betting. Federal lawmakers have also raised concerns about insider trading risks, questioning whether existing safeguards are sufficient.
This uncertainty complicates entry for regulated financial institutions, which require clear compliance frameworks before committing capital or launching new products. Even as federal authorities assert oversight under commodities law, conflicting state-level interpretations continue to create friction.
Liquidity is another limiting factor. While volumes have increased, market depth remains uneven, particularly for contracts outside major events. For market makers and institutional traders, consistent liquidity is critical to scaling participation.
As a result, firms such as Schwab and Citadel are likely to remain in an evaluation phase until both regulatory clarity and market structure improve.
