By Manya Saini and Niket Nishant
(Reuters) -Robinhood said on Monday it will allow trading in U.S. presidential election event contracts as it seeks to capitalize on growing retail demand for betting products.
This will offer users the opportunity to benefit from speculation about the close race between Vice President Kamala Harris and former President Donald Trump, with polls showing a narrow lead for Harris, but within the margin of error.
Shares of the trading platform rose 4% after the company said it would begin rolling out the contracts to a limited number of users, who must be US citizens, on Monday.
Event derivatives trading involves buy and sell contracts that allow traders to speculate on the outcome of specific events, such as elections, economic data releases, or political decisions.
These derivatives, which are relatively new and generally considered high risk, have gained ground in recent years.
“It is very, very difficult to conclude that a derivative linked to the outcome of an election and marketed primarily to retail investors is an investment,” said Brian Bissonette, industry director of investment banking at Intapp DealCloud.
But Henry Robinson, co-founder of Decimal Digital Currency, said Robinhood's (NASDAQ ) move was “smart.”
“As financial markets evolve and become more democratized, investors will appreciate these types of very specific risk contracts,” Robinson said.
PredictIt, a prediction market platform where users can buy and sell stocks based on the outcomes of future events, has also gained popularity in the run-up to the election.
A federal judge ruled in September to allow Americans to use derivatives for betting on events, marking a setback for the U.S. Commodity Futures Trading Commission, which had tried to block them. An appeals court upheld the order in October.
Robinhood introduced index and futures options trading features to its mobile app earlier this month.
The company, which became synonymous with mom-and-pop investors in 2021, now aims to evolve into a comprehensive financial services provider and compete with established brokerages that serve institutional clients.
Earlier this year it pledged to widen margins and prioritize “profitable growth” in 2024. Investor enthusiasm has fueled a more than 100% year-to-date jump in the company's stock.
!function(f,b,e,v,n,t,s){if(f.fbq)return;n=f.fbq=function(){n.callMethod? n.callMethod.apply(n,arguments):n.queue.push(arguments)};if(!f._fbq)f._fbq=n;n.push=n;n.loaded=!0;n.version=’2.0′;n.queue=();t=b.createElement(e);t.async=!0;t.src=v;s=b.getElementsByTagName(e)(0);s.parentNode.insertBefore(t,s)}(window, document,’script’,’https://connect.facebook.net/en_US/fbevents.js’);
