Prediction Market Education: What Investors Must Learn

Prediction markets are one of the fastest-growing categories in finance, but most investors do not understand them. As we detail in our full review of the Prediction Markets presentation, Luke Lango’s presentation is essentially an education in what prediction markets are, why they are growing, and how to profit from them without placing bets. Here is what investors need to learn first.

What Prediction Markets Are

Prediction markets let people trade shares that pay out based on whether a predicted outcome occurs. Who will win the election? Will the Fed cut rates? Will a specific bill pass? Platforms like Kalshi and Polymarket allow users to buy shares that pay out based on outcomes. The prices of those shares reflect the collective wisdom of the market about the probability of each outcome.

If you understand how stock markets work, you can understand prediction markets. Instead of buying shares in a company, you buy shares in an outcome. A share trading at $0.65 implies a 65 percent probability. If the event occurs, the share pays out $1.00. If it does not, the share is worth zero. For more on the basics, see our article on what is the Kalshi app.

Why They Are Growing

Lango identifies five structural forces driving prediction market growth.

First, regulatory clarity. In 2024, Kalshi won a landmark court battle against the CFTC, establishing that prediction markets on political and economic events are legal in the United States. This removed the primary regulatory uncertainty.

Second, a better product. Prediction markets are more convenient than Las Vegas, sports betting apps, or local bookies. They are available on your phone and cover a wider range of topics.

Third, real-time forecasting. Broadcasters, analysts, and political campaigns use prediction market odds as a forecasting tool. When CNN or Fox references “the markets” on election night, they are increasingly citing prediction market data.

Fourth, institutional interest. Goldman Sachs has a team analyzing prediction markets and is reportedly building a prediction market trading desk. When Goldman Sachs enters a category, it signals institutional legitimacy.

Fifth, economic stress parallel. Lango draws a parallel to the 1970s, when economic stress drove the Vegas gaming boom. Economic uncertainty drives people toward prediction markets as both a hedging tool and a speculative outlet.

Trading volume is up 400 percent in recent quarters. The market could grow from $64 billion to $1 trillion by 2030. For more on the structural forces, see our article on prediction market investing.

How to Profit Without Betting

Lango’s core message is that you can profit from prediction markets “without placing a single bet.” The approach is to invest in the publicly traded companies that build the infrastructure behind prediction markets, not to bet on specific outcomes.

Robinhood (HOOD) has partnered with Susquehanna to offer prediction markets to its 27 million users at a flat $0.01 per contract. Coinbase (COIN) owns the rails that Polymarket trades run on, since Polymarket uses USDC for settlement. Both are publicly traded stocks available through any brokerage.

This is the picks-and-shovels approach. During a gold rush, the people who sold picks and shovels profited whether or not any individual miner struck gold. Lango applies the same logic to prediction markets. If the category grows, the infrastructure companies benefit regardless of who wins any specific event. For more, see our article on prediction market stocks.

What Beginners Should Learn First

For beginners, the key lesson is that prediction market investing is not the same as prediction market betting. Betting requires you to predict outcomes correctly. Investing in infrastructure requires you to understand whether the category is growing. The data says it is: 400 percent volume growth, legal clarity, institutional interest, and mainstream platform adoption.

Start by understanding the structural forces. Then evaluate the infrastructure companies. Robinhood’s 27-million-user base and $0.01 pricing give it a genuine competitive position. Coinbase’s ownership of the USDC infrastructure gives it a strategic position in the crypto-based prediction market ecosystem. For more on getting started, see our article on investment sites for beginners.

The Risks

The $1 trillion projection is an estimate. The “October 13th” Goldman Sachs date is unconfirmed. The “fastest growing market in the U.S.” superlative is unverified. Both HOOD and COIN are exposed to broader market conditions, crypto regulation, and fintech competition. But the structural forces, regulatory clarity, volume growth, institutional interest, and mainstream adoption are real and documented. For more on Robinhood specifically, see our article on whether Robinhood is safe to invest in. For more on the broader thesis, see our article on prediction market investing.

This is not financial advice. Always do your own research before investing.