Following the victory of Kalshi, a prediction market operator who recently won a court case that sought to block it from offering election markets, Interactive Brokers has announced that it will also allow clients to wager on the US elections.

Wagering on US election outcomes will start on Monday, September 16 at Interactive Brokers, following a pivotal federal court ruling in favor of Kalshi, a prediction market operator. This marks a significant development in financial services and election markets, as it opens the door for legal betting on US elections - a practice that has long been prohibited in the country.

Federal court ruling paves the way

The decision to allow election betting comes on the heels of a recent ruling by District Court Judge Jia Cobb, who sided with Kalshi in a legal battle against the Commodity Futures Trading Commission. The CFTC, which regulates Kalshi and other similar entities, had blocked the company from presenting event contracts related to US elections. In response, Kalshi filed a lawsuit in 2023, stating that the CFTC had overstepped its authority by preventing the exchange from submitting these contracts.

Judge Cobb's ruling was released just under two months before the upcoming 2024 congressional and presidential elections. In her opinion, she emphasized that the contracts proposed by Kalshi do not constitute gambling or any illegal activity. "This case is not about whether the Court likes Kalshi's product or thinks trading it is a good idea," wrote Cobb. "The Court's only task is to determine what Congress did, not what it could do or should do. And Congress did not authorize the CFTC to conduct the public interest review it conducted here."

Following Cobb's ruling, Kalshi wasted no time in launching two election-related wagering markets: one predicting whether Republicans or Democrats will control the House and another for the Senate succeeding the November 5 elections.

A bonus for bettors

Interactive Brokers' entry into election betting is poised to be a game-changer for bettors. To date, traditional betting on US elections has been deemed illegal, but certain companies have found ways to participate in the election market by circumventing conventional betting methods. For instance, Polymarket has seen a rise in interest by allowing clients to buy shares in an event, which are considered assets rather than bets. This technicality has allowed Polymarket to operate within the bounds of US law.

Interactive Brokers, however, will offer a more straightforward approach by allowing clients to bet directly on the result of the presidential race. Clients can place binary bets on either former President Donald Trump or Vice President Kamala Harris. The brokerage firm also plans to introduce betting options on key Senate races in swing states, though specific states were not disclosed.

For those interested in investing in the election, the access provided by Interactive Brokers could be invaluable. The company operates the biggest US electronic trading platform, processing over three million trades daily. With over 1.7 million accounts, the potential for profit is significant, especially given the high demand for election-related wagering. Early in August, records showed that over $1 billion had been staked on the presidential race through gray market platforms such as Smarkets and PredictIt.

Experience in event contracts

Interactive Brokers is no stranger to event contracts related to finance. The firm launched the ForecastEx platform recently, which allows clients to bet on economic data like monthly jobs reports, consumer sentiment, and inflation. This experience in handling event-driven contracts positions the company well for its foray into election betting.

Other firms are also exploring similar opportunities. Earlier in the year, Susquehanna International Group, a prominent trading house, began making markets on Kalshi for events related to Federal Reserve interest rate decisions and even movie reviews.

Concerns about democracy

Despite the excitement surrounding this new market, not everyone is on board with the idea of election betting. Critics argue that allowing gambling on elections could further undermine confidence in the democratic process, especially at a time when trust in US elections is already fragile.

"Democracy in America is at a fragile crossroads, with more Americans questioning the integrity of elections than ever before," said the director of derivatives policy at Better Markets, Cantrell Dumas, in a statement. "The shocking attack on the Capitol on January 6, 2021, is just one glaring example, but across the country, less visible incidents continue to chip away at the public's confidence in our elections and democracy itself. In this shaky political moment, the last thing our country needs is for democracy to be undermined further by allowing gambling on elections."

As the US approaches the 2024 elections, the overall impact of legal election betting remains to be seen. However, with Interactive Brokers entering the fray, it's clear that the financial markets are ready to embrace this controversial but potentially lucrative opportunity.