How trading event contracts is different from sports betting or stock trading.
Event contracts vs. sports betting
Kalshi is an exchange for trading on events, similar to a stock exchange. As a result, the exchange matches counterparties trading on markets. It does not set odds and wager against people using the platform.
Kalshi has a fee-based business model, charging a small transaction fee per trade.
When wagering on a sportsbook, bettors ultimately are betting against “the house” or the platform itself. These platforms' profits are completely tied to the losses of the bettor, providing them a massive incentive to encourage financial loss on the part of the user. To guarantee these profits, sportsbooks set odds that are inherently unprofitable for the bettor.
Kalshi, on the other hand, operates like a stock exchange for events, matching individuals who have differing opinions on event markets with one another. On Kalshi, you are always trading against another member of the platform, never the exchange itself. To make profits, the exchange charges a transaction fee from each trade made on the platform. Fees are not applied on trades from market makers.
Event contracts vs. stock trading
Event markets' outcomes are tied to real world events, meaning they are more direct tools for financial exposure than other securities.
Event contracts allow individuals to hedge against events that directly impact their personal assets and day-to-day life, not just those that move the stock market.
Predicting how the price of stocks will change over time is an imperfect science. Markets move due to changes in the underlying economic value of the company, which can be affected by abstract forces like trader sentiment or company politics.
Example: If an individual believes that electric vehicle (EV) production will surpass estimates in the coming year, they may purchase a large quantity of Tesla stock. If the individual's prediction is correct, the underlying price of Tesla could still fall due to unrelated factors such as a board rearrangement or a lawsuit from a competitor.
With event contracts, individuals are able to trade directly on the outcome of events. Instead of buying shares in Tesla, the individual in the aforementioned example could trade directly on EV production data. This would protect their trade from factors unrelated to the opinion they seek to capitalize on.
In addition to being impacted by abstract forces, securities are restricted in the scope of events they can hedge against. Investors can trade stocks to indirectly hedge their risk against events regarding inflation and interest rates, but not those regarding falling water levels at Lake Mead or rent in New York City.
This contrasts event contracts, which not only give investors the ability to hedge against events that impact the stock market, but also those that directly impact their personal assets and day to day life.
Example: A family owns a beach house on the coast of Miami. They buy an event contract that will pay them if a hurricane hits the coast of Miami before the end of the year. The family's beach house is now protected against a hurricane, as any damages will be covered by the profits from the event contract.