As Donald Trump’s victory in the U.S. presidential election became clear Wednesday, so too did the power of betting websites to predict political outcomes.
For weeks leading up to the contest, prediction websites were cited—and often questioned—for showing the former president as a heavy favorite over Kamala Harris, even as poll after poll pegged it as a toss-up race. In the end, the betting markets won.
And with the election seen, particularly in finance circles, as a referendum on the relative power of polls and these platforms, betting websites will now no doubt take on an even greater air of market-powered invincibility.
“These markets will run the world,” said Thomas Peterffy, the billionaire founder of Interactive Brokers. “People tend to say what they want, but in these markets, they will bet the way they think the outcome will occur, not what they want the outcome to be. It takes the emotion out of these questions.”
Peterffy, a GOP mega-donor, has poured millions into developing a prediction market at Interactive Brokers that allows users to wager on anything from a presidential election to global carbon emissions and initial jobless claims. It put the chances of a Trump victory at about 62% in the hours before polls closed Tuesday. The platform is a long way from being profitable, Peterffy said in an interview before the election. But it will be eventually, he added, and the insights it generates will be invaluable to businesses and governments.
Prediction markets became increasingly popular in the wake of the 2016 election, when traditional polls missed the mark on Trump’s victory. They steadily rose in prominence after Harris entered the race in July, with the odds part of the daily conversation about the race. For Peterffy and others, it was a stroke of luck in early October when a judge cleared the path for Kalshi Inc. to allow betting on U.S. election outcomes using derivatives contracts—effectively giving a green light to other players like Interactive Brokers’s ForecastEx. Traders piled in.
Critics view these websites as little more than a plaything for gamblers, creating small, illiquid markets where the users skew heavily male. Plus, trading on the likes of Polymarket can only be done using cryptocurrencies, catering to a very specific audience. The platform recently revealed a French national spent more than $45 million on bets that Trump would win, which may have unreasonably pushed the price in the former president’s favor.
Tarek Mansour, chief executive of Kalshi, conceded that about 90% of the traders on his platform are men. But he said that “doesn’t do anything,” noting that a higher share of the website’s female users bet on a Trump victory than male bettors—a dynamic inconsistent with polling data.
At the end of day, Wall Street’s view that the pursuit of profit is purest form of human motivation was confirmed by the accuracy of the betting markets. Voters might lie to a pollster, or their friends and family, but, as the thinking goes, having money on the line is clarifying. And with legalized sports betting pushing gambling into the mainstream, there are now more ways to place bets on politics than ever before, drawing in participants and theoretically improving the signals these market prices send.
Heavy Favorite
With polls showing a neck-and-neck race, prices across betting markets in late October swung heavily in favor of Trump. Some showed his chances of winning at nearly 70%, even as the political world was gripped by polls showing a deadlock. That spurred contrarian bets for Harris, which traders viewed as underpriced. (Currency markets, meanwhile, priced in as much as a 70% chance of a Trump victory ahead of Election Day, JPMorgan Chase & Co. strategists said in a Nov. 1 note.)
In recent days, there was a brief surge for Harris, especially after a poll released Saturday showed her leading in Iowa. But by Tuesday, Trump once again had a big lead on both Kalshi and rival platform Polymarket. As the polls closed Tuesday and results trickled in, it became clear that the betting websites were right.
Wagers on the platforms are made using so-called event contracts, allowing people to put money on whether they think something will or will not happen. Specific yes-or-no questions are priced between 1 cent and 99 cents. If the outcome occurs, the bet pays out $1. Just like normal futures contracts, investors can benefit from a low-priced outcome that then rises in value by selling and pocketing the difference, or holding until the event occurs.
Harris Bets
Jacob Skaaning in Copenhagen has been putting on Harris for weeks before the vote. He placed another bet on Tuesday, buying a “yes” to the question “Will Kamala Harris be inaugurated?” for just 37 cents on Polymarket. The 39-year-old, a full-time crypto trader, said the bet was about 3% of his portfolio, and he viewed it as a hedge on the idea that a Trump win would boost his crypto holdings.
Kubs Lalchandani, a 47-year-old lawyer in Miami, thought the gap between polls and market prices was too large leading up to Election Day. He had used to Kalshi to bet some $6,000 on the election as of Tuesday, doubling down on wagers that Harris would take the Oval Office.
“When the betting markets started skewing strongly in favor of Trump, I got a bit spooked,” said Lalchandani, who started betting on some smaller races, such as the Arizona senate contest. “Thankfully, I also bought Bitcoin and Tesla stock to maybe offset some of the losses in the presidential race.”
This article was provided by Bloomberg News.