If you’ve been dismayed and concerned by the blurring of the line between investing and gambling in financial markets, this post is for you.

During 2025, there has been a sharp uptrend in the popularity and use of prediction markets. Prediction markets (run by companies such as Kalshi and Polymarket) are exchanges where people can trade financial contracts on the outcome of future events.

The prices of these contracts reflect the collective belief of the participants about the probability of a given event. The most common contracts are binary (ie: will xyz happen, “yes” or “no”?) and the price moves based on probability (ie: a contract trading at $.0.75 has a 75% probability from the crowd). When an event happens, the contract pays $1; if not, it pays $0.

Certain investment platforms (like Robinhood) are allowing access to these prediction markets, leading to their increased usage. (Note: Other custodians, like Fidelity, Vanguard, and Schwab, have not allowed for such access on their platforms). This increased accessibility has led to the spike in popularity, with a recent study by the CFA Institute finding that 61% of Gen Z investors aged 18 to 25 gamble online or in-person.

Investing versus Gambling

The “pro” argument on this new phenomenon is that prediction markets and traditional investing are the same – ie: both are different forms of gambling. Sure, there is a very slight overlaps between the two. Both investing and gambling involve risk and both have the potential for gains and losses. Beyond that, they are distinctly different in my view.

Gambling is a game of chance, typically involving short-term bets on binary (yes/no) outcomes. It’s proven to have a negative expected return over time (“the house always wins”) and is generally based on a “hunch” that can rarely can be researched in any real way (Perfect example – here are the examples Kalshi gives on its own website for wager: an investor might wager on whether a new version of Chat-GPT will be released in the coming year or whether Taylor Swift will win a Grammy).

On the other hand, investing is a longer-term strategy of capital allocation ideally based on research and data analysis. This strategy should take into account specifics of your risk tolerance and financial goals with the aim of structuring a diversified set of assets that have the potential to generate an income stream and/or appreciate over time. Over time, investing has been proven to generate a positive expected return (footnote a – see analysis at end of this post)

Sports Betting

Another dangerous aspect of this story is the entry of popular sports betting sights (FanDuel and Draft Kings) into the prediction markets. With other prediction markets allowing betting on sports (like Kalshi and Polymarket), these sports betting companies were anxious to enter the game. The added access only increases the problem as you can gamble from your couch.

In the past, these betting sights had been subject to state regulations (and taxation) applicable to gambling. These regulations were put in place to protect citizens from themselves and the addictive nature of gambling. However, since prediction markets involve financial contracts/options, they are regulated by federal law, thereby circumventing these state restrictions. And with a current federal administration not concerned with the dangers of this trend, there is little to no regulatory headwinds in the foreseeable future.

Both DraftKings and FanDuel have a shared strategy regarding these sports event contracts – they don’t offer them in states with legal online sports betting (seemingly a way to safeguard their sportsbook businesses and relationships with state gambling regulators, many of whom are opposed to prediction markets). Rather, they only offer them in states where online sports betting in not legal.

Investor Beware

The long-term negative effects of gambling are well-known and broad, potentially damaging most key areas of life such as family well being, mental health, financial security, and in some extreme cases suicide risk. The proliferation of these predication market sites is a real area of concern as they vastly increase access and ease of use.

As an investor (and as a human), it’s incumbent upon you to stay aware of the risks and cognizant of the blurred line between investing and gambling. It’s not the first time that human inventions designed to actively work against us have been put in place (and it won’t be the last). Keep paying attention and keep putting your best interests first. Not every trend deserves our hard-earned attention and time.

Onward we go,

Footnote A – Analysis from the Schwab Center for Financial Research³ shows that the chances of achieving a positive return by investing increases with time. Take any single month between 1928 and August 2025 and the S&P 500 was profitable about 62% of the time. If you extend that time horizon to a year, the probability for a positive return improves to 75%. Over five years it rises to 89%. Over ten years it’s 95%. And a 20-year investment in the S&P 500 has historically yielded a positive return 100% of the time. You simply can’t say that about gambling.