In an era where news cycles and information gathering are dominated by social media, it’s fair to say that it feels like we are a lot more opinionated. Studies have shown that we are more politically engaged than ever before, but it also extends to other areas. Fintech, for instance, has delivered access to direct financial trading, which, twenty years ago, would have felt to most like opaque activities left to Wall Street. The upshot is that 20-year-olds have firm opinions on the price of gold and oil, Fed funding rates and inflation, and a myriad of other topics.
In this hyper-information era, it is, thus, unsurprising that predictions markets have become hugely popular. They are an extension of the “you can put your money where your mouth is” era of strong feelings, driven by social media. Indeed, predictions markets have become so popular all of a sudden that they are actually driving news cycles rather than just framing them.
If you aren’t aware, a prediction market is a concept of trading on a “yes” or “no” principle. Will the price of oil reach $150 by the end of June? Will JD Vance win the GOP presidential nomination for 2028? Will the USMNT win its World Cup group? People take either side of the trade, forming the market. The odds and returns are then driven by percentages on each side. The platform will usually take a small commission.
DraftKings Predictions Launched Recently
Predictions markets are not new. Moreover, they closely resemble activities on Wall Street, especially when it comes to trading commodities and financials. In their current form, they were mostly established by cryptocurrency platforms. However, there has been a huge shift to the mainstream, with new regulated platforms launching in the US. The sports betting and DFS giant DraftKings, for example, recently launched DraftKings Predictions, which covers a massive range of sports, stocks, economics, commodities and business.
So what exactly is the allure? Why not simply bet on your favorite sports team or trade oil futures with a fintech platform? Well, the simple answer is that you are trading against or with other people – and for people, read “sentiment” – so it offers a completely different system to, say, sports betting.
Betting Against – Or With – the Herd
To explain, consider a hypothetical scenario that this season’s NBA Finals featured the Oklahoma City Thunder and Boston Celtics. Sportsbooks will set odds based on a range of factors. Now let’s say the sportsbooks make OKC the red-hot favorite (they probably will this year), providing short odds for the 2025 champions to repeat. With predictions markets, the odds are driven by money, meaning the odds might be more generous in either direction. In fact, as the Celtics have a large fanbase (again, remember this is hypothetical), it’s conceivable that more money would flow in to back them, skewing the odds.
The point, as such, is that you are weighing up a different measurement of value. Even outside of sports, you might take a look at the world and think that threats of, say, oil price shocks are overblown, thus you might find that sentiment is weighing in the opposite direction in the trade, so you take the contrarian view in the hope of profiting.
We began this talking about social media, so let’s finish talking about social media and provide a few caveats. The first is that, yes, it does feel like predictions markets are a natural consequence of this era of hyper-information. Secondly, it is worth remembering that more information is not necessarily a good thing, especially when it is shown that many of us encounter social media echo chambers that reinforce biases. Finally, don’t forget that there can be savvy traders on the opposing end of the market, as predictions markets have become big business – a multi-billion-dollar business. If a trade looks like easy money, you need to question it.