Imagine that today, prediction markets – which were a niche for enthusiasts just a year ago – are hitting numbers that are about to exceed billions of dollars annually. Monthly trading volume in this business increased from a modest $100 million in early 2024 to more than $13 billion by the end of 2025, that is, a more than 100-times increase. 

These platforms turn simple “yes/no” questions into financial instruments like derivatives, allowing participants to buy and sell probabilities. As a result, people can bet on everything – from "Will the Fed cut rates by March?" to "Will the weather be good tomorrow?" And some of them know how to capitalise on their gut feeling.

The gap in traditional tools 
Prediction markets didn’t appear by accident but became a response to the growing uncertainty in finance. Over the past decade, so-called “black swans,” the rarest but most devastating events that don't fit into standard models, have ceased to be an exception.

In any sector, markets usually follow a normal distribution, where 98 per cent of outcomes are everyday fluctuations and the rest 2 per cent are "tails" – the extremes that make up black swans. 

We have just started 2026, and the tail risks have already increased; take the conflict in Venezuela, for example. And this turbulence hasn’t started just in the new year. The whole of 2025 was under pressure, with unexpected events occurring one after another.

As these unlikely scenarios happen more often, traditional financial instruments begin to show their limitations. Classic futures and options are ineffective here, as they are primarily used to hedge continuous risks such as oil prices or interest rates. Even within their own domain, they failed under extreme conditions, as was shown during the negative oil prices in 2020 – the scenario that seemed impossible.

For now, geopolitics and constant policy changes are creating a regime of chronic uncertainty that can be managed mostly through prediction markets, which are tailored exactly to work with unexpected events. This is what has generated the demand for an accurate hedge of binary events: "Will silver hit the record in January? Yes or no?"

Getting out of the grey zone 
If these platforms work well and allow us to look forward to the future, why have banks and institutions ignored them so far? Is it a sign that the industry is not mature enough? 

On the one hand, yes, the infrastructure for the prediction markets is not ready yet: API integrations, custodians, and full communication with risk systems are needed. And the most important thing is that the regulatory contour is only drafted. The industry develops faster than any regulatory body can keep pace, and some platforms still lack approvals.

That’s why, in Europe, for example, many regulators are concerned about the volume of prediction markets and still consider them a new form of gambling. To me, it is very similar to the case of cryptocurrencies: first, the new market was treated with prejudice, but it gradually found its place in the financial system.

On the other hand, in the US, these platforms are already able to operate under the same regulatory framework as other traditional derivatives. The difference is that each platform must be considered individually to be fully legitimate. One of the platforms has already received such approval by the CFTC, which has created a new class of exchanges under federal supervision with clearing, protection, and rules similar to those of futures giants such as CME.

Although this case clarified the rules, it still did not open all the doors. Many details are not considered yet, even in the US, not to mention the other regions. 

How prediction markets complement TradFi
Despite these markets seeming innovative, the history of signing futures and options contracts for events is not new; such instruments have long existed. In fact, event contracts were initially designed to complement traditional derivatives and risk management tools, not replace them.

Today, they confirm this complementary status and are being integrated into major exchanges and financial media as a source of real-time probability data. For example, some of them are collaborating with Robinhood, Webull, and the Intercontinental Exchange to integrate event contracts into retail applications and data feeds for sentiment analysis. Market expectations are important in finance, so the Bloomberg Terminal has also integrated prediction market data to improve macroeconomic forecasts.

For the crypto and high-tech market, prediction markets are useful as well – the eventfulness there can play an even bigger role. In practice, it can be used to hedge regulatory risks. For crypto projects, it is extremely important to know whether something is allowed or prohibited by the regulator. Through such contracts, investors can insure themselves against any regulatory outcome. 

Final words
This way, prediction markets have become a new tool for managing narrow, specific risks that can’t be effectively hedged through traditional futures. This will only take them forward, so we are on the verge of the prediction markets' expansion. At the same time, prediction markets are hindered by the lack of regulations that would establish an industry playbook. That’s why we are only at the beginning of a long journey, where prediction markets will become a full-fledged derivatives industry and have mass adoption.

About the author

Julia Khandoshko is a finance industry professional with 10 years of experience in technology and capital markets. Khandoshko joined Mind Money, a leading European investment technology and financial engineering hub, as the CEO in 2020. In this position, she oversees all operational facets of the company's strategy. Khandoshko has written for this news service before, see articles here and here.