By Robinhood stock is up 4% on the news that the platform will roll out tradable contracts on the US presidential elections outcome.
The contracts for Kamala Harris and Donald Trump are expected to be available to US users starting today.
The derivatives which the company intends to list will allow customers to buy and sell contracts that will effectively be speculations on the eventual winner of the elections.
Even though these contracts have existed in the past as well, they have only gained traction in the recent years.
A game changer for Robinhood
Robinhood already has an element of gambling on its platform, something it denies but has frequently come under fire for.
Over three years ago, Robinhood found itself embroiled in the GME meme frenzy. Its users started buying stocks of companies that had no fundamental strength and were simply trading on hype.
The platform became a get rick quick scheme for many younger retail investors, with people proudly showcasing how they bet their entire savings or salaries on a particular stock.
As this meme frenzy spilled into other stocks, it became a popular niche of its own. People signed up on Robinhood because it was a no nonsense way of placing bets on companies.
If regulations weren’t so to
ugh in the US, Robinhood would have already turned into a gambling company. At least that was the kind of crowd it had attracted.
However, with gambling still not mainstream in the US, the company has had to stick to the major capital markets.
This doesn’t mean Robinhood can’t diversify its business in the future. Contracts like the ones being launched for this year’s elections will eventually be used for other events as well.
Soon it will be the NFL, NBA, and other major sporting events. Oscars, Nobel prizes, and Olympics won’t be far behind.
Robinhood sits on a large database of users who would be happy to be able to bet on these events, without having to sign up on a betting website.
This new niche could power the company’s growth in the future.
Market favoring Donald Trump
This election has been one of the most volatile in recent history.
As a result, betting markets have attracted a lot of attention and money.
Betting trends before major events tend to show a reflection of the eventual result.
Nevertheless, markets can also severely misprice underdogs, which is what happened in 2016 when Hillary Clinton, a clear favorite, lost to Donald Trump.
This tendency for mispricing is what shrewd gamblers are looking at.
As we approach the election date, punters have started betting heavily on Donald Trump, driving the odds further into his favor.
Those who backed Donald Trump early on in the race are sitting on profits while those who opposed Joe Biden have already made money since his dropping out.
Kamala Harris may go into the elections as an underdog in the betting world. However, that in no way means she can’t beat Trump.
The lower her chances of winning, the more rewarding it becomes to put money on her eventual success.
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