Prediction market platforms including Kalshi are increasingly targeting hedge funds and other institutional investors as they look to move beyond their retail trading base and enter the next stage of market expansion, according to a report by Reuters.
The sector, which has seen rapid growth in retail participation over the past year, is now actively courting asset managers, hedge funds and other large financial institutions capable of executing sizeable, sophisticated trades.
Executives and industry participants say hedge funds are attracted by the ability to express targeted macro and event-driven views through instruments that can offer more direct exposure than traditional derivatives markets.
Kalshi, one of the leading platforms in the space, has recently executed its first customised block trade and reports a sharp rise in institutional activity. The company said trading volumes from institutional clients have surged significantly over the past six months, contributing to a rapid increase in overall platform turnover.
Institutional participants now include hedge funds, large asset managers and prime brokers, many of which are using prediction markets to position around scheduled macroeconomic events such as employment data releases and inflation prints.
These trades are often structured as paired positions or hedges, with institutions taking offsetting bets to manage risk exposure. Some transactions reportedly reach several million dollars in notional value, signalling early signs of scaling institutional demand.
Despite the growth, market participants acknowledge that prediction markets remain in an early phase of institutional adoption.
Kalshi executives said efforts are underway to deepen liquidity and expand access through partnerships with prime brokers and market infrastructure providers.
Industry firms including Clear Street and market participants such as Jump Trading have begun supporting connectivity to prediction market venues, helping facilitate access for institutional clients. Futures broker Marex has also been involved in developing infrastructure links to platforms including Kalshi and Polymarket.
However, liquidity constraints remain a key challenge. Analysts warn that relatively shallow order books mean large trades can still materially move prices, limiting the ability of hedge funds to deploy capital at scale.
Market observers note that some of the most active prediction markets still represent relatively modest total liquidity, which can amplify volatility when larger institutional flows enter the system.
As a result, while institutional interest is rising, actual execution remains limited compared with traditional asset classes.
Executives at Kalshi argue that continued onboarding of institutional participants will help address liquidity constraints over time, gradually enabling larger and more stable trading flows.
Despite the early-stage nature of the market, some industry figures believe prediction markets are beginning to be viewed as a distinct alternative asset class.
Supporters argue they offer hedge funds a more precise way to isolate and trade specific risks, particularly around macroeconomic events and policy outcomes, compared with conventional derivatives products.
