Canadians will soon be able to trade on the outcome of future events through prediction markets, but critics say the platforms look more like gambling than investing.
In March, the Canadian Investment Regulatory Organization (CIRO) authorized Toronto-based fintech Wealthsimple to offer prediction markets trading. Two months later, Wealthsimple announced the upcoming launch of Wealthsimple Predict, a standalone app that will let users trade on the outcome of economic, financial and climate events through a partnership with the U.S.-based prediction exchange platform Kalshi. Wealthsimple has not yet announced an official launch date.
Prediction markets allow users to buy contracts tied to the outcome of a future event. If the event occurs, you get a dollar, and if it doesn’t, you gain nothing. For example, if a contract asking whether the Strait of Hormuz will return to normal shipping operations by the end of July is trading at 42 cents, an investor pays 42 cents to buy it, explains Charles Martineau, an associate professor of finance at the University of Toronto. If the event occurs, the contract pays $1. If not, the investor loses their 42 cents.
Previously, Canadians who wanted to use prediction markets would access an offshore platform like Polymarket through a virtual private network (VPN), Martineau says, which makes it look like users are logging in from elsewhere.
The future of prediction market trading
Global equity research firm analyst Gautam Chhugani estimates that prediction market trading volumes will hit US$240 billion in 2026, a 370 per cent jump compared to last year. He also expects that by 2030, prediction market volumes will climb to approximately $1 trillion.
Despite recent regulatory approval, many Canadians are still skeptical about prediction market platforms.
Nearly three-quarters of Canadians say prediction markets are more like gambling than investing and more than half (57 per cent) say they should not be available on investing platforms, according to a recent survey by CIBC Investor’s Edge Poll.
Wealthsimple declined to comment, instead pointing to a news release and blog post announcing the product.
“We know in the U.S. that Polymarket and Kalshi get most of their money through sports-related questions or crypto-related questions,” Martineau says.
Wealthsimple currently has to stay away from “sexy questions” like those, but if the company doesn’t generate enough trade volume, they could go back to regulators and ask to open the door to sports or crypto bets, he says.
The appeal for younger investors
Martineau argues that prediction markets pose the biggest risk to younger investors who may find them more exciting than traditional investing.
They do have a purpose. It’s early days in terms of their ability to deliver that purpose.
Luka Marjanovic, managing director and head of CIBC Investor’s Edge
Through his own research on Polymarket, he discovered the median user lost two dollars while the average return was roughly zero dollars. Although young investors may think the odds are that they will break even, using these platforms can be “detrimental to financial health” if they focus on short-term wins rather than investing in the broad equity market, reinvesting dividends, and letting investments sit.
“Stay away from prediction markets if you think you can make some money for your retirement, potentially buying a house or saving for a downpayment,” he says.
Family offices and prediction markets
For family offices, it’s too early to tell whether and to what extent the rise of prediction markets will affect them. Some may end up with some type of exposure if, for example, a hedge fund they are invested in is dabbling in prediction markets. Down the road, prediction market ETFs may arise to give investors access to prediction markets through a family exchange traded fund wrapper. In the U.S., prediction market ETFs are currently under review by the U.S. Securities and Exchange Commission (SEC) and are not yet available for trading.
In the short term, the perhaps-greater likelihood is that family members will ask for advice about prediction bets—which could be a significant challenge, given how new the marketplace is and how rapidly it is evolving.
Martineau’s research found that only 30 per cent of users made money on Polymarket, with most gains concentrated among the top one per cent of traders. Those successful participants tended to fall into three groups: investors who got lucky placing large bets, people who identified contracts they believed were underpriced, and liquidity providers who earned money by facilitating trades.
Luka Marjanovic, managing director and head of CIBC Investor’s Edge, says prediction markets also carry risks because they are relatively new.
He says less actively traded contracts can suffer from a lack of liquidity, meaning investors may pay more to buy and sell them. He also cautioned that, unlike the New York Stock Exchange and Toronto Stock Exchange, prediction markets are still evolving, making it harder for investors to know why contracts are priced the way they are and whom they’re trading against.
For example, Polymarket made headlines this spring when data analytics firm Bubblemaps raised concerns about insider trading, identifying that nine connected accounts made more than US$2.4 million betting on specific dates regarding military action in the war in Iran.
Still, Marjanovic believes prediction markets could eventually become a risk-management tool for sophisticated investors as liquidity improves. For example, an investor whose portfolio is exposed to the outcome of a Federal Reserve interest rate decision could use a prediction market contract as a form of insurance to help offset potential losses.
“They do have a purpose,” he says. “It’s early days in terms of their ability to deliver that purpose.”
Marjanovic cautioned, however, that conflating prediction markets with investing, particularly for unadvised clients, raises “moral hazard” concerns, and “Canadians are aware of that.”
Leah Golob is a Toronto-based freelance business journalist covering business, personal finance and consumer issues. Her work has appeared in The Globe and Mail, The Toronto Star, the Canadian Press, The Logic and Yahoo Finance Canada. She has been recognized with awards from the Portfolio Management Association of Canada (PMAC) and the Society for Advancing Business Editing and Writing (SABEW Canada).
The Canadian Family Offices newsletter comes out on Sundays and Wednesdays. If you are interested in stories about Canadian enterprising families, family offices and the professionals who work with them, you can sign up for our free newsletter here.
Please visit here to see information about our standards of journalistic excellence.