[ I N D E P T H ]
of regulatory clarity is likely to slow adoption of prediction markets from banks and hedge funds.”
While some firms may be interested in testing the waters, it appears that the overarching buy-side view is to err on the side of caution, and even stay away completely from prediction markets. Buyside participation in these markets is currently low, largely due to structural, regulatory and reputational hurdles.
In particular, overlaps of sports and gambling, as well as crypto exposure in prediction markets may be a key deterrent for buy-side firms, due to these contracts’ unsuitability for client capital, such as pensions. For example, almost 40 % of Polymarket’ s trading volume in early 2026 constituted sportsrelated betting, an area which is of limited interest for many buy-siders, as well as some institutional firms.
As Jesse Forster, head of equity market structure and technology at Coalition Greenwich, commented:“ When I talk to people about prediction markets, if I put two and two together and look out in the room I don ' t think there’ s going to be institutional trading in these markets. This is not a unique thought- I don ' t think it ' s about hedge funds necessarily trading off this.”
However, despite potential resistance from buyside participants to venture into these markets, several industry voices also highlighted the importance of prediction markets’ data and the ability to manage risk offered by these contracts, which may be beneficial to the buy-side, and wider industry. events, and find a new way to speculate and hedge everyday risks, instead of traditionally buying stocks or bonds.
Through this, prediction markets, in essence, make trading more digestible for a retail investor, however behind this also lies significant benefits for institutional participants.
As previously mentioned, proprietary trading firms are beginning to interact in ways such as hedging macro uncertainty like monetary policy or election outcomes.
Explaining this trend, Flatley said:“[ These firms ] already trade event-driven risk in the form of options or credit default swaps, so they’ re comfortable with imperfect liquidity and value real-time probability signals, not just P & L.”
Getting your foot in the door For many, the driver for retail participants engaging in prediction markets is clear – the opportunity to take a position on macroeconomic, real-world
“ It ' s a different form of financial activity from investing into your pension for a payoff in 25 years’ time. But is it just gambling?”
MATT BARRETT, CHIEF EXECUTIVE, ADAPTIVE
30 // TheTRADE // Q1 2026