Kalshi index contracts could compete with brokerages, economist says

Kalshi's leveraged contracts tied to stock indexes could eventually compete with US brokerages for investors' savings, economist Rajiv Sethi told Gambling Insider, even as a Wall Street lawsuit focuses on a different set of products.

Sethi, a professor of economics at Barnard College, Columbia University, said the potential competition concerns money investors can allocate outside tax-advantaged retirement accounts. He did not claim that customers are already moving savings from brokerages to Kalshi.

The Capital Markets Alliance Association has sued over the Commodity Futures Trading Commission's authorization of single-stock perpetuals on Kalshi, Coinbase Derivatives and Bitnomial. The association, whose members include Cboe Global Markets and Citadel Securities, argues that the products should be governed as security-based swaps rather than security futures.

On November 3, U.S. District Judge Valerie Caproni denied the association's request for a temporary restraining order because it had not shown irreparable harm requiring emergency action. She found, however, that the association was likely to succeed on the merits of its claim.

In a November 10 filing, the association said Kalshi had listed more than 50 single-stock perpetual contracts within two days. It also cited approximately $375 million in reported trailing 24-hour notional trading volume.

Sethi said broad index contracts, which he does not believe are covered by the lawsuit, could have greater implications for investors' savings. Perpetual contracts have no set expiration date, but traders must meet margin requirements and pay or receive applicable funding payments to keep positions open.

Leverage can magnify losses. A screenshot Sethi shared with Gambling Insider showed 36.4 times buying power for Kalshi's US Large Cap perpetual on November 8 and 29.3 times for US Tech 100. By November 12, those figures had fallen to approximately 14.6 times and 11.8 times, respectively.

Sethi warned that a sufficiently large downturn could wipe out fully leveraged positions and trigger automatic liquidation. He also said Kalshi's products would not replace traditional retirement vehicles, including tax-deferred accounts to which employers contribute.

Kalshi displayed around $183 million in 24-hour trading volume for US Tech 100 and $35.3 million for US Large Cap on November 12. Sethi said trading activity alone does not establish whether customers are holding positions for the long term rather than making short-term trades.