A reporter from Investment News reached out recently to ask about prediction markets after seeing my previous post, Structure Over Bets: How You’re Built Matters More Than What You’re Predicting. Specifically, they wanted to know if prediction markets are a new way to invest.
It was a relatively easy response: this is not investing. I noted, “It used to be that you’d have to drive to a casino to lose money. Now you can do it in your bedroom, on your phone, the moment you wake up. To me, it’s more akin to betting and gambling than investing.”
Prediction markets (Kalshi, Polymarket, PredictIt) have exploded in popularity. Bernstein projects trading volume will hit $240 billion in 2026 and $1 trillion by 2030. They’ve got slick interfaces, real-time odds, and the addictive quality of watching a number tick up or down as the world reacts to news.
I get the appeal. I get that they may do a better job predicting future events than any individual “expert”.
I do not get why anyone would confuse them with investing.
You can be the best player in the room and still go broke just by paying for your seat.
For every winner, there is an identical loser. If you win $100 because the Fed cuts in June, that money came directly from the pocket of someone who bet the other way. The pie does not get bigger. You are simply cutting it into pieces. And the reality is actually worse: the platform takes a slice before you even sit down.
The “vig” manifests differently across platforms, but it is always a tax on your intelligence. PredictIt charges 10% on profits plus a 5% withdrawal fee, a 15% hurdle on every win. Kalshi’s variable fee of 1.75%–3.5% hits hardest on the 50/50 toss-ups most people want to trade. Polymarket’s platform fees look low at 0.1%–1.8%, but you may pay 2%–4% just converting dollars to crypto to get in the door.
Then there’s the bid-ask spread to consider. If “Yes” costs $0.52 and “No” costs $0.50, it costs $1.02 to own both sides of a $1.00 payout before a single fee is even applied. Once you add the vig, the collective pool of participants is down 5% to 6% before the event even happens.
The lottery industry processes hundreds of billions of dollars a year. That doesn’t make lottery tickets an investment strategy.
This was a distinction I kept coming back to in my conversation with the reporter, and I think it’s the one that matters most.
When you fund a company through equity or debt, you have ownership in a real business that hires people, builds things, and sells products. If it works, the total value in the system goes up. Both sides can win because new wealth was created.
Prediction markets are a closed loop. Nothing is built. Nothing is sold. Your winnings are your neighbor’s exact losses, minus the platform’s cut. You are paying an entry fee to see if your opinion is more popular than someone else’s. Capital in a Kalshi contract is capital not in the equity engine, where compounding and real earnings growth are actually working.
As I outlined in the article “A trillion dollars chasing binary contracts. The worst-case scenario is simply that it’s a trillion dollars not compounding in investment markets.”
Claiming that a prediction and a stock option are the same because they’re both derivatives is like saying a seatbelt and a slot machine are the same because they both involve probability.
Technically, a derivative is a derivative. But there’s a difference between a tool that serves the portfolio and a standalone bet that happens to look like one. A long put changes the behavior of the entire portfolio. It lets us hold more equities, run more offense, and stay in the equity engine through volatility. It doesn’t exist in isolation. It makes the whole structure work better.
A Kalshi contract does none of that. It lives alone, costing fees, tying up collateral, and paying a below-market rate on your trapped cash while you wait.
Prediction markets should be viewed as entertainment, not an investment, and sized accordingly.
The investors I worry about are those who win a few times, conclude they have a gift for reading events, and then start managing their account at the scale of an investment portfolio, but with binary contracts. That’s where the real damage happens.
When you frame it as entertainment, the scale should be smaller. It really comes down to sizing it accordingly.
So What Should You Actually Be Doing?
None of our clients has brought prediction markets up as part of a financial plan. They’re trying to compound wealth over a decade, not guess the next Fed decision.
Here is the practical checklist when the prediction market conversation comes up:
- Capital drag. Money in a Kalshi contract is trapped collateral. It is not in the equity engine. The opportunity cost of sitting on the sideline, even a short one, compounds against you over time.
- Behavioral contamination. Once someone gets used to binary outcomes, they start expecting their portfolio to work the same way. It doesn’t. Long-term investing is about probabilities over time, not single events. Managing those expectations matters.
- Tax treatment. Prediction market gains are generally taxed as ordinary income. A successful Kalshi bet is not a long-term capital gain. Add that to the platform vig and you’re facing a serious headwind before a dollar of “profit” actually reaches your pocket.
Ultimately, the goal of wealth management isn’t to be the person who correctly predicted the Fed’s next move. It’s to be the person who didn’t need to. While the industry hypes the trillion-dollar promise of these platforms, remember what’s actually being traded: your time, your focus, and your compounding potential.
Don’t pay a 10% success tax for the privilege of guessing. The “what’s next” question is a distraction, not a strategy. You don’t need a better crystal ball; you need a system that thrives regardless of the outcome. Keep your capital in the engine room, not on the betting floor.
Disclosures
Past performance is not indicative of future results. This material is not financial advice or an offer to sell any product. The information contained herein should not be considered a recommendation to purchase or sell any particular security. Forward looking statements cannot be guaranteed.
This commentary offers generalized research, not personalized investment advice. It is for informational purposes only and does not constitute a complete description of our investment services or performance. Nothing in this commentary should be interpreted to state or imply that past results are an indication of future investment returns. All investments involve risk and unless otherwise stated, are not guaranteed. Be sure to consult with an investment & tax professional before implementing any investment strategy. Investing involves risk. Principal loss is possible.
Advisory services are offered through Aptus Capital Advisors, LLC, a Registered Investment Adviser registered with the Securities and Exchange Commission. Registration does not imply a certain level of skill or training. More information about the advisor, its investment strategies and objectives, is included in the firm’s Form ADV Part 2, which can be obtained, at no charge, by calling (251) 517-7198. Aptus Capital Advisors, LLC is headquartered in Fairhope, Alabama. ACA-2604-21.
