Polymarket has applied for a license that would allow it to offer margin trading, allowing them to borrow funds to purchase larger contracts at prediction markets, Bloomberg reported Thursday.
Margin trading requires users to open brokerage accounts rather than standard accounts. The Federal Reserve allows users to borrow up to 50% of the price of eligible securities, meaning a user who deposits $1,000 could be loaned another $1,000 by their broker, for $2,000 in total buying power.
How does margin trading work?
Polymarket's U.S. affiliate, Coming Home GBA LLC, filed for a Futures Commission Merchant (FCM) license with the National Futures Association this week, Bloomberg reported, citing a company representative.
Even if approved, Polymarket cannot offer margin trading until it receives the approval of the Commodity Futures Trading Commission (CFTC), the federal body that regulates its prediction markets. The CFTC must sign off on new company operating procedures, which would include allowing users to trade with borrowed funds.
Larger institutions are familiar with brokerage and custody arrangements, which allow investors to obtain, trade, and settle digital assets.
Brokers manage margin exposure through various means and require users to maintain their position above a minimum threshold. For example, a 25% maintenance margin requirement on a $10,000 position would require the user to keep at least $2,500 in liquid value.
Brokers also have the right to liquidate securities in an account if the accountholder does not meet the margin call.
Kalshi was already licensed
Polymarket’s leading rival, Kalshi, was granted an FCM license in March through its affiliate, Kinetic Markets. That was a significant development in the prediction industry, as it distinguished Kalshi from other peer-to-peer platforms by merging it with regulated financial intermediaries.
The FCM designation also strengthened Kalshi's hand in its ongoing battles with lawmakers. Many officials — mostly at the state level — have argued that prediction markets are effectively unlicensed gambling, and have pushed for Kalshi to obtain a state gaming license and pay gaming taxes before operating.
FCMs are strictly regulated, but at the federal level. Kalshi and other licensed Merchants would theoretically have another reference point to show that their regulation supersedes state-level efforts.
Prediction markets are booming
Polymarket’s FCM application comes during a time of extraordinary growth for prediction markets.
As if the last year wasn’t filled with enough development, the FIFA World Cup helped prediction operators process eye-watering trading volumes. Polymarket processed $10.8 billion in trades during June and is part of a larger industry that is expected to hit $240 billion before the end of the year. Licensed operators handled $51 billion in trades last year.
Bernstein Private Wealth Management said in April it expected the prediction industry to reach $1 trillion in volume by 2030. It also forecasted the wider development of “information markets” in place of narrowly defined contracts.
The Trade Handle Prediction Markets Take
The FCM designation would allow Polymarket to attract professional traders and institutions that are used to moving large sums across multiple positions. It would also help the company keep pace with its top rival, Kalshi, which is still awaiting CFTC approval to launch margin trading. Additionally, becoming a licensed FCM would give Polymarket more regulatory certainty as a financial tool, not a gambling platform.