Robinhood (NASDAQ: HOOD) has announced a new business segment with the launch of a prediction markets hub. The new vertical is operated by Robinhood Derivatives. The hub will enable trading on contracts for what the upper bound of the target Fed funds rate may be in May, as well as the upcoming men’s and women’s March Madness tournaments. As prediction markets can serve just about any event and its outcome, the market can be almost limitless.
Prediction market contracts are typically binary based on the outcome of an event. The price alters in advance of the event driven by market expectations. A contract pays out if you get it right and if not, they go to zero.
Robinhood already offers traditional securities as well as crypto. Options, futures and certain commodities are also available. While other mainstay online broker-dealers have mostly been rooted in the past of stocks and bonds, Robinhood continues to show a need to innovate and provide new services for its customers.
Robinhood initially sought to launch a prediction market in advance of the Superbowl in February, only to receive a request to pause the offering from the Commodity Futures Trading Commission (CFTC).
At that time, Robinhood expressed disappointment in the request not to permit customers to access, adding that they had been in regular contact with the CFTC as they sought to expand into the vertical. It appears the transition from the Biden to Trump Administration may have encouraged Robinhood to enter the market once again.
The prediction markets hub will initially be available in the US through KalshiEX LLC, a CFTC-regulated exchange. Kalshi is the first CFTC-regulated exchange provding trading on the outcome of future events and is an potential competitor of Robinhood.
Robinhood currently reports almost 26 million customers and assets under custody of $187 billion. The expansion into prediction markets should help boost trading revenue and attract new customers.