With election betting now available in the US, over $100 million rides on the outcome of tomorrow’s contest on Kalshi alone. But can the prediction market provider’s users risk that much individually, as a recent story by NBC News claimed?
While some clients enjoy the leeway of that $100 million limit, the answer for typical Kalshi customers is no. The actual maximum position most users can hold is still high, at $7 million. However, only certain institutional investors qualify for the $100 million limit, and they must meet stringent standards.
CFTC at Odds with Election Futures Providers
As NBC News noted in its piece about election prediction market data getting confused with election poll results, election betting is controversial.
Recently, both Kalshi and PredictIt (another prediction exchange) have faced pushback from the Commodity Futures Trading Commission (CFTC). As futures exchanges they operate within the CFTC’s jurisdiction.
For years, PredictIt operated under the protection of a CFTC “no-action letter.” However, in 2022, the CFTC determined that PredictIt’s operations exceeded the commission’s original intent and withdrew the letter.
Predictably, PredictIt responded with a lawsuit, which is pending. In the meantime, the Fifth Circuit prevented the CFTC from shutting the exchange down.
Then, just weeks ago, courts granted Kalshi a similar reprieve.
While the CFTC has proposed a rule change that would exclude election futures contracts outright, the change has yet to take effect. Meanwhile, a US court denied the CFTC’s motion to stay. As a result, Kalshi can offer election futures contracts, at least for now.
The ongoing dispute could still see US election markets shuttered, but not until long after tomorrow’s vote. Indeed, despite the legal limbo, new players, like stock-trading platform Robinhood, have joined the melee.
Notably, several lawmakers have opposed election betting. Whether they’ll be around in January to keep up the opposition remains to be seen.
Kalshi’s Position Limit is $7 Million for Typical Users
NBC News claimed twice in its report that Kalshi allows individual users to wager up to $100 million on its election markets. However,
Here:
A handful of companies, including Kalshi and Interactive Brokers, have been allowing users to tap their way to wagering on Donald Trump or Kamala Harris to win the election. Just days before the election, even stock-trading platform Robinhood jumped in on the party, offering a betting market of its own. The companies set their own betting limits, with Kalshi letting users wager as much as $100 million.
And here:
Kalshi lets bettors wager as much as $100 million on the outcome of the general election…
However, a quick review of Kalshi’s election betting rules reveals otherwise. The relevant section reads:
Position Limit: The Position Limit for the $1 referred Contract shall be as follows:
- The Position Limit for Individuals and Entities shall be $7,000,000 per strike, per Member.
- The Position Limit for Eligible Contract Participants (“ECP”) shall be $100,000,000 per strike, per Member.
Higher Limits Reserved for Bigger Players
According to Kalshi, “individuals and entities” can only have $7 million worth of contracts on a single outcome. The $100 million limit only applies to these ECPs.
So, what’s an “Eligible Contract Participant”?
Per Investopedia, an ECP is a special category of institutional investor with access to markets that are closed to the average investor.
An eligible contract participant (ECP) is an individual or an entity that’s permitted to engage in certain financial transactions that aren’t open to the average investor. ECPs are often corporations, partnerships, organizations, trusts, brokerage firms, or investors that have total assets in the millions. Very stringent requirements must be met before one can achieve eligible contract participant status.
Typically, financial institutions, insurance companies, broker-dealers, and investors must have at least $10 million in assets to become ECPs. However, the requirements for those hedging are substantially less: assets of $5 million if hedging investment risk and $1 million if hedging commercial.
So, large brokerages and investment firms that meet stringent requirements and have special approval could wager $100 million on whether Trump or Harris wins tomorrow. But, for regular Americans, Kalshi’s $7 million limit is much lower.
About the Author
