Thoughts on using event contract to hedge or trade high impact events risks?

[Kalshi]

How is it backed by Schwab?? How can you prove the other side has the assets in place to fulfill their commitment/contract?? Thinking FTX...

Will the other side put money in escrow/trust account to complete their transaction??

50 years ago my dad told me "never contract with someone who has nothing to lose"!! How can you prove they are real on the other side? Will Schwab back the other side, if they lose the contract and default or go bankrupt??

Can you show me a link to trading the CPI for a year or two years?? Which index would you use...Including energy or not??

How are disputes resolved...

Schwab himself was part of one of our funding rounds, as you can see reported in the Wall Street Journal.

We're a regulated exchange and work with a CFTC regulated clearing house, and all user funds in a segregated custory account at a US bank. When you get into a position we have the funds from you and your counterparty, and we allocate to the winner at settlement. There's no margin in our system so no default risk. You're right that the money from the counterparty is held by the clearing house.

We have extensive KYC to meet our regulatory obligations, so we know every person or company trading on the exchange.

We have a couple of different CPI markets, here are a few:
US Core CPI (monthly): https://kalshi.com/events/CPICORE-23APR/markets/CPICORE-23APR-T0.2/
US CPI (monthly): https://kalshi.com/events/CPI-23APR/markets/CPI-23APR-T0.2/
US Annual inflation: https://kalshi.com/events/ACPI-2023/markets/ACPI-23-B3.5/

I'd love to chat more about the inflation markets if you're down, if you just DM me some times that work for you I'll find a way to be there

 

[Kalshi]

Who provides liquidity? How wide is the market or are there fees? Max $size the exchange will accept?

We have a lot of traders providing liquidity in different markets. Some of the traders are small funds that specialize in market making for event contracts. However, everyone can market make, we have an API that makes that really simple if you're interested.

How wide the markets are really depends on the market, our spread is usually around 1c for our most liquid markets. If you let me know the types of contracts you're most interested in I can check the spread on those and get back to you.

We do charge fees for takers (if you're taking liquidity from the exchange), but if you're providing liquidity (placing resting orders) you pay no fee. The fees average at less than a cent per contract.

The max size we accept also depends on the contract. For our inflation markets the maximum exposure you can have in the market is $7M. Soon our Fed related markets will also have a maximum exposure of $7M.

Let me know if I can help with anything else!

 

[newwurldmn]

I think Goldman tried to offer something similar in the mid 2000s. I don’t think it ever got any traction. Hedging is difficult so you need natural axes.

 

[Kalshi]

I think Goldman tried to offer something similar in the mid 2000s. I don’t think it ever got any traction. Hedging is difficult so you need natural axes.

Goldman actually still offers products very similar to ours via their exotics desk, but you need to be their client to be able to trade those. What do you mean by natural axes?

 

[newwurldmn]

Goldman actually still offers products very similar to ours via their exotics desk, but you need to be their client to be able to trade those. What do you mean by natural axes?

i don’t think they are liquid. I saw the pitch for the products and never heard anything after that. I’ve also been out of the industry for 12 years.

Your products are unhedgable outside your ecosystem. the only way to get a good market is if someone actually wants to take the other side (they are biased to have the opposite exposure as you)

 

[TheDawn]

How are you currently playing high impact events like FOMC decisions, CPI prints, debt ceiling, etc.?

My name is Tarek Mansour and I am the CEO and founder of Kalshi. Backed by Charles Schwab, and Sequoia Capital, Kalshi is the first US federally regulated exchange that allows traders to trade directly on the outcome of events, through an asset class called event contracts. Kalshi’s CFTC approval unlocked the ability to commoditize almost anything intro tradable instruments from Covid numbers to whether a bill will pass in Congress, broadening the historical definition of what a commodity derivative is and paving the way for the futures market to catch up to all the novel risks facing the economy today.

You can currently trade on a broad range of events on Kalshi, including FOMC decisions, inflation, daily weather, financial indices, commodities, climate change, COVID, SCOTUS decisions, TikTok Ban, and more. You can trade through our app (iOS or android), website, or API.

The simple idea behind event contracts came about during my time at Goldman Sachs in 2016. At the time, clients were looking to get direct exposure to Brexit and the 2016 US elections. Our desk would structure and sell complex financial bundles that included options, swaps, and a number of other instruments. However, these products have a clear problem: they are proxies and thus imprecise. Also, they're super expensive (we were charging 40% premiums to some of these counterparties).

Event contracts are (imo) elegant trading instruments because they allow traders to get direct exposure to the event itself, rather than trading on the market reaction to the event and trying to figure out what's priced in or not.

One of our most successful markets today is one about FOMC decisions: it allows you to trade all 2023 meetings directly. You can trade FED meetings directly or play the curve (flatteners, steepeners) or hedge the residual risk that the FED is presenting to your portfolio.
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I read more about this post. I must say I like what I read. This is a great innovation that allows us retail investors to be able to trade specific targeted events and potentially gain financially. The way I see it, it's like packaged mini-ISDA except in a systemic exchange in a structure everybody can participate. I see great potential in this.

And also when we trade on the event exchangers, who's our counterparty? Who are we trading against? Other traders? The exchange operators? Or is this like betting on a horserace or sports betting? And where is our funds deposited? What's the custodian bank of our funds? How would we know that our funds are segregated from the company's operating funds? Would this be audited? Are you a FCM registered with CFTC?

Like I said, this has great potential but there are a lot more details that I would like to find out.

 

[TheDawn]

Will Joe Biden finish out his current term??

Will Israel bomb Iran??

Will there be a peace accord between Russia and The Ukraine??

Some type of protection against super inflation...

That last one I am interested in and would love to talk further about how it could be structured!!

I will add one more event: Will China invade Taiwan? And would USA actually intervene like what it did in the Gulf War?

 

[Cabin111]

I called and talked to Luana...She and the company seem legit. She answered many questions, that many of you will be getting answers to very soon. I told her she really needs to delegate to others, many of these questions. She also gave me a number of someone in the company, who would provide the services (hand holding) that would be needed for what I want to pursue.

I am not saying I will invest...But, I will do my due diligence from here (and not go hog wild)...

Thank you Luana...

PS About 40 years ago Charles "Chuck" Schwab was on KNBR in San Francisco...Taking calls. I was able to call in and ask a couple questions...Be still my heart!!

 

[TheDawn]

How are you currently playing high impact events like FOMC decisions, CPI prints, debt ceiling, etc.?

My name is Tarek Mansour and I am the CEO and founder of Kalshi. Backed by Charles Schwab, and Sequoia Capital, Kalshi is the first US federally regulated exchange that allows traders to trade directly on the outcome of events, through an asset class called event contracts. Kalshi’s CFTC approval unlocked the ability to commoditize almost anything intro tradable instruments from Covid numbers to whether a bill will pass in Congress, broadening the historical definition of what a commodity derivative is and paving the way for the futures market to catch up to all the novel risks facing the economy today.

You can currently trade on a broad range of events on Kalshi, including FOMC decisions, inflation, daily weather, financial indices, commodities, climate change, COVID, SCOTUS decisions, TikTok Ban, and more. You can trade through our app (iOS or android), website, or API.

The simple idea behind event contracts came about during my time at Goldman Sachs in 2016. At the time, clients were looking to get direct exposure to Brexit and the 2016 US elections. Our desk would structure and sell complex financial bundles that included options, swaps, and a number of other instruments. However, these products have a clear problem: they are proxies and thus imprecise. Also, they're super expensive (we were charging 40% premiums to some of these counterparties).

Event contracts are (imo) elegant trading instruments because they allow traders to get direct exposure to the event itself, rather than trading on the market reaction to the event and trying to figure out what's priced in or not.

One of our most successful markets today is one about FOMC decisions: it allows you to trade all 2023 meetings directly. You can trade FED meetings directly or play the curve (flatteners, steepeners) or hedge the residual risk that the FED is presenting to your portfolio.
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You also mentioned that each event is compromised of different financial instruments in a bundle? How is the bundle priced? Would we actually be able to know what instruments are used in the financial bundle to trade on a specific event? If we do, we might, just might be able to hedge against our trade on our own or do you provide some kind of hedging facilities?

And also if we "win" on what we bet, how do you allocate the funds to the winners?

 

[Baron]

Baron, have you done your due diligence on this company??

No. I just take whoever will sign up. Of course I did man. I've been doing this for 26 years, and I can assure you I turn down way more companies than I allow.

Kalshi is solid and 100% Baron approved.