Political betting: ‘There’s a lot of interest across the board,’ Kalshi CEO says

Kalshi CEO Tarek Mansour joins Yahoo Finance Live to discuss how financial exchange Kalshi works, developing a new asset class, political betting, and inflation.

Video Transcript

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AKIKO FUJITA: We'll call it investing with a twist. The regulated exchange Kalshi allows investors to trade events like stocks. Joining us now with more insights on this investor plays Kalshi CEO Tarek Mansour. Tarek, it's great to have you on today. You know, we've heard so much about the growth in the betting markets. But this is an unusual proposition. Walk me through how exactly Kalshi works.

TAREK MANSOUR: Thanks for having me, Akiko. So Kalshi is a financial exchange, think like the New York Stock Exchange or CME, but developing a new asset class, like you mentioned, an asset class that is called event contracts that allows people to trade directly on things that have economic relevance in their day-to-day. This could be COVID. This could be a climate or whether. It could be political events. It could be economics and financial indicators. The structure is simple. People can buy yes and no shares, the same way they can buy shares of Apple or crude oil, on whether Brexit is going to happen, or whether COVID-- another new COVID wave is going to come, or where inflation is going to be next month.

AKIKO FUJITA: And so what are you seeing in terms of inflows? I mean, if it is about yes and no, sure we've seen betting in sporting-- you know, sporting events, maybe the presidential election or politics, but we're talking about financial events included in this as well, right?

TAREK MANSOUR: Absolutely. We have all sorts of types of events across a variety of categories. I think there's a lot of interests across the board. You know, some of the interesting things that we've seen, we've had inflation and Fed markets have been doing phenomenally. And the interesting things in these markets is, like, when people are trading on these markets, it is giving us a very accurate estimate of where-- what the future holds. And so our markets have actually been forecasting inflation more actually than the Bloomberg economy survey in the last 12 months and allowing certain market participants to get informed by that. You know, obviously the next big upcoming set of markets are the midterm elections that we have a filing with the regulator for right now. But these are some of the main categories.

AKIKO FUJITA: OK. I'm going to get to the midterms in just a bit. But specifically on the Fed, what is the yes or no question investors are trading on? And what does that tell you about where sentiment is?

TAREK MANSOUR: Yes. Over we're something like Fed and inflation, the question are about where will inflation be next month, right? Where will it be and what levels? And you have levels sort of going between -0.2% all the way to 10%, 12% month-over-month. So right now, for example, our forecasts for inflation over the next few months, we have -1% for August, 0.1% for September month-over-month, and then 0.2% for October. So a clear deceleration of inflation over the next few months, which actually is a pretty good sign.

AKIKO FUJITA: And on the midterms, I mean, how much of what you're seeing is tracking with the poll numbers, which have seemed to show that, you know, things are not all bad for the Democrats, as was expected several months ago?

TAREK MANSOUR: Yes. That's a great question. So actually, you know, right now we are in the process of filing our markets for the midterms with our regulator, the Commodity Futures Trading Commission. And this is a great question because it's exactly the type of questions of why we've actually decided to list this market. People want a more accurate mechanism to forecast what is happening with the midterms. And as you know, polarization is at an all-time high. Polling averages, their accuracy has been decreasing over the last 10 years. So people don't know what to trust today. And depending on, you know, what you read and what you see, you're getting wildly different answers and what the midterms hold for us.

And so a market where people are actually putting their money where their mouth is and they have skin in the game gives us significantly more accurate source of truth for what the midterms hold.

AKIKO FUJITA: I mean, what kind of returns are we talking about here? I mean, you know, I heard this and I thought, well, it seems like a natural transition from where the rest of the market's been going, but it also feels like things could go bad if you're betting on financial markets or financial events.

TAREK MANSOUR: That's a good question. I mean, I think it depends on how you define it. You know, this is not betting in any way, shape, or form differently than, you know, for example-- an example I always talk-- like to talk about is, in the 1900s, and very few people knew this, grain futures used to be called gambling. There was a question of is this gambling. And actually, you know, regulators and the Supreme Court decided no, because people are using these markets to hedge themselves against what comes in the future. And that's why you and I could go-- you know, can buy bread for cheap today, because farmers can hedge themselves against these risks.

So these types of markets like, you know, let's say the political markets allow people that are ever more exposed to these elections and outcome of elections, like the energy, or health care industry, or other types of things, to basically hedge themselves and put on a protection-- and it's a little bit like an insurance. --against something adverse happening to them and whether-- depending on which party is going to end up taking power. And so this is what's happening here. Now, obviously, some people are speculating, and then they can make returns on these markets. But this is very important. It's very important to have speculators to build the liquidity necessary for hedgers, people are looking to reduce their risk with speculator events to do what they need to do.

AKIKO FUJITA: It's certainly fascinating to see the growth on that front. Tarek Mansour, Kalshi CEO, it's good to have you on today. Appreciate the time.