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

[Cabin111]

So I went looking for a down pillow this afternoon (The odds of finding a real one, that is not online is about .00naught)...I'll double check with Kalshi on the odds (joke).

I was thinking (while driving around town), what I talked to her about. What I would like to do...I think it would be cost prohibitive. You decide...Luana, not a dig on you or your company. It's just I don't think you could produce a trader on the other side, of what I am looking for. I'll throw it out here...

I would like to purchase a contract that would track the Core CPI from Jan 24 to Jan 25. I would like to gain at least 200% if I am right. Say if inflation (for that year), was over 20%. Could I get a two to one odds on that?? Could it be higher...Three or four to one?? Could it be 10 or 20 to 1...

I was hoping for something like ten to one, but that would not be realistic. Here is why...

Kalshi holds the contract money for each side. The money does not earn interest during the wager. The answer to every trade needs to be either a yes or no...No ambiguities. I'll do a simple 10 to 1 example.

I put up my $1,000. for the Core CPI to rise above 20% that year (Jan 24 to Jan 25). Say the person (mutual fund) on the other side agrees. They would need to put up $10,000. and wait a whole year before they could collect on my puny $1,000. contract. If CDs or Treasuries are paying 5%, they could have made $500. without batting an eye. Their $10,000. is now worth less than $8,000. (general terms), because inflation has risen more that 20%.

I could sit there with my $1,000. waiting for the other side, to come in with a contract, that would fit my needs...While my $1,000. is NOT earning interest.

If someone could structure a contract (win win) to protect for super inflation I would love to hear it...

 

[Kalshi]

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.

Thank you so much for the kind words! Your counterparty on Kalshi is other traders/companies that go through our KYC process and are vetted by our compliance processes. All the money from every trade is held by our partner clearing house (which is also CFTC regulated) in a segregated custody bank account. The best way you can be sure about this is because of our regulatory status and CFTC oversight.

We're a DCM (designated contract market) regulated by the CFTC. This means we're an exchange itself (you can think about us as you think about CME in terms of regulatory status). We opted to start by the direct to consumer route vs an intermediated route which would mean offering our products through a FCM. Here is the CFTC link with more information about our designation: https://www.cftc.gov/IndustryOversight/IndustryFilings/TradingOrganizations/42993

Please let me know if I can answer any other questions!

 

[SteveH]

There's going to be the same problem as Nadex and Single Stock futures:

The spreads will be lousy and will not improve over time.

 

[Kalshi]

There's going to be the same problem as Nadex and Single Stock futures:

The spreads will be lousy and will not improve over time.

Did you trade on either? Would love to hear about how the experience was like!

What were the spreads like? And do you have a sense of why they didn't improve over time?

 

[Kalshi]

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

Depends on the market. A number of our markets have 1 tick wide spreads, and orderbook depth is ramping up. We have a number of participants that provide liquidity on t

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)

Yes events are much harder to hedge. However, there are a number of bank desks that offer exotics products that aim to offer clients

So I went looking for a down pillow this afternoon (The odds of finding a real one, that is not online is about .00naught)...I'll double check with Kalshi on the odds (joke).

I was thinking (while driving around town), what I talked to her about. What I would like to do...I think it would be cost prohibitive. You decide...Luana, not a dig on you or your company. It's just I don't think you could produce a trader on the other side, of what I am looking for. I'll throw it out here...

I would like to purchase a contract that would track the Core CPI from Jan 24 to Jan 25. I would like to gain at least 200% if I am right. Say if inflation (for that year), was over 20%. Could I get a two to one odds on that?? Could it be higher...Three or four to one?? Could it be 10 or 20 to 1...

I was hoping for something like ten to one, but that would not be realistic. Here is why...

Kalshi holds the contract money for each side. The money does not earn interest during the wager. The answer to every trade needs to be either a yes or no...No ambiguities. I'll do a simple 10 to 1 example.

I put up my $1,000. for the Core CPI to rise above 20% that year (Jan 24 to Jan 25). Say the person (mutual fund) on the other side agrees. They would need to put up $10,000. and wait a whole year before they could collect on my puny $1,000. contract. If CDs or Treasuries are paying 5%, they could have made $500. without batting an eye. Their $10,000. is now worth less than $8,000. (general terms), because inflation has risen more that 20%.

I could sit there with my $1,000. waiting for the other side, to come in with a contract, that would fit my needs...While my $1,000. is NOT earning interest.

If someone could structure a contract (win win) to protect for super inflation I would love to hear it...

So I went looking for a down pillow this afternoon (The odds of finding a real one, that is not online is about .00naught)...I'll double check with Kalshi on the odds (joke).

I was thinking (while driving around town), what I talked to her about. What I would like to do...I think it would be cost prohibitive. You decide...Luana, not a dig on you or your company. It's just I don't think you could produce a trader on the other side, of what I am looking for. I'll throw it out here...

I would like to purchase a contract that would track the Core CPI from Jan 24 to Jan 25. I would like to gain at least 200% if I am right. Say if inflation (for that year), was over 20%. Could I get a two to one odds on that?? Could it be higher...Three or four to one?? Could it be 10 or 20 to 1...

I was hoping for something like ten to one, but that would not be realistic. Here is why...

Kalshi holds the contract money for each side. The money does not earn interest during the wager. The answer to every trade needs to be either a yes or no...No ambiguities. I'll do a simple 10 to 1 example.

I put up my $1,000. for the Core CPI to rise above 20% that year (Jan 24 to Jan 25). Say the person (mutual fund) on the other side agrees. They would need to put up $10,000. and wait a whole year before they could collect on my puny $1,000. contract. If CDs or Treasuries are paying 5%, they could have made $500. without batting an eye. Their $10,000. is now worth less than $8,000. (general terms), because inflation has risen more that 20%.

I could sit there with my $1,000. waiting for the other side, to come in with a contract, that would fit my needs...While my $1,000. is NOT earning interest.

If someone could structure a contract (win win) to protect for super inflation I would love to hear it...

Thanks for this. The points you make above are all great. A few thoughts:

1) This is the type of market that we can list on Kalshi. We currently have YoY inflation markets for every month in 2023 (see image below).

2) The "odds" you get will depend on how the market is pricing the event itself. I cannot say for sure what the odds/price would be but the vision of Kalshi is to be a marketplace for traders to meet and trade to express these views! If it's of interest, we can list an inflation market for 2024.

3) The interest point is a savvy one. We are currently working on paying interest rate on the deposits that are held as collateral for trades in the clearinghouse. This would hopefully ensure that traders are not incurring heavy opportunity cost when entering into longer dated trades.

I'm happy to chat about this any time.

 

[TheDawn]

Depends on the market. A number of our markets have 1 tick wide spreads, and orderbook depth is ramping up. We have a number of participants that provide liquidity on t



Yes events are much harder to hedge. However, there are a number of bank desks that offer exotics products that aim to offer clients




Thanks for this. The points you make above are all great. A few thoughts:

1) This is the type of market that we can list on Kalshi. We currently have YoY inflation markets for every month in 2023 (see image below).

2) The "odds" you get will depend on how the market is pricing the event itself. I cannot say for sure what the odds/price would be but the vision of Kalshi is to be a marketplace for traders to meet and trade to express these views! If it's of interest, we can list an inflation market for 2024.

3) The interest point is a savvy one. We are currently working on paying interest rate on the deposits that are held as collateral for trades in the clearinghouse. This would hopefully ensure that traders are not incurring heavy opportunity cost when entering into longer dated trades.

I'm happy to chat about this any time.



View attachment 313211

How are winnings distributed? How do we get rewarded when we win and after how long? Shortly after the event? Or at a specific time each month? Is the winning deposited in our account held at the Clearinghouse or your custodian bank? What if we lost? Do we just forfeit what we deposited in? As others have asked before, do we earn interest when our fund is deposited with the Clearinghouse while waiting for the result of the event? And what if we lost, do we lose the interest that we have earned on the funds that we deposited as well?

Thanks.

 

[traderjo]

So this is same as CME event contracts $20 settlement.. so why should we trade these over CME? and also you dont allow non us RESIDENTS TO TRADE!

 

[Cabin111]

Just saying...A lot of the Google reviews are people who have posted 1-2 reviews. I am very wary of that...Insiders/friends, asked/forced to review their own product, but don't review other products (services).

I'll wait six months or a year and get back to this company...

I was at Morgan Stanley (about the year 2000)...I knew about Schwab/Fidelity. I waited about 5 years before I pulled the trigger and moved to them. I thought about it long and hard...

 

[Kalshi]

How are winnings distributed? How do we get rewarded when we win and after how long? Shortly after the event? Or at a specific time each month? Is the winning deposited in our account held at the Clearinghouse or your custodian bank? What if we lost? Do we just forfeit what we deposited in? As others have asked before, do we earn interest when our fund is deposited with the Clearinghouse while waiting for the result of the event? And what if we lost, do we lose the interest that we have earned on the funds that we deposited as well?

Thanks.

The winnings are distributed 1-2 hours after determination, the settlement time for each market can be found on the specific market page. The funds you win get added directly to you Kalshi account and you can withdraw directly from there. The money you deposit/win at Kalshi is held by the Clearinghouse at the custodian bank in a segregated account . If you lose you can only lose the amount you bought the positions for, since we're a fully cash collateralized exchange.

You don't earn interest at the moment, but we're working on adding this in the upcoming months. Hope this helps!

 

[Kalshi]

So this is same as CME event contracts $20 settlement.. so why should we trade these over CME? and also you dont allow non us RESIDENTS TO TRADE!

Well it's just a matter of size. The CME contracts are equivalent to buying 20 of our contracts. The benefit of having a 0-1 price range is that you can think about it directly as the probability of the event happening (probabilities go from 0-1 so it's the same principle here).

We don't allow non residents at the moment, but we hope to expand internationally soon!