Schwab Joins Prediction Market Party, But Sports and Politics Aren’t on the Agenda

• Charles Schwab is entering the prediction market business with yes/no derivatives on the S&P 500 Index
• The US brokerage firm is partnering with Cboe Global Markets
• Sports event contracts not part of the equation

Charles Schwab (NYSE: SCHW) is reportedly preparing to join the prediction market craze, though the brokerage giant is leaving the politics and pop culture to rivals like Kalshi and Polymarket in favor of pure financial data.

Through a partnership with Cboe Global Markets (BATS: CBOE), Schwab is preparing to offer traders access to binary options — essentially yes/no contracts — on the S&P 500 Index and could make those derivatives available in the coming months, according to reports in The Wall Street Journal.

Schwab is also rolling out a similar options offering with a Cboe feature called ‘the plus zone’ that allows traders to earn a partial payout if they are mostly right, even if the closing price of the index isn’t exactly what they predicted,” reports The Journal.

Binary options and event contracts are different terms, but the assets function in similar ways. As is the case with an event contract on a prediction market, binary options are black and white in that traders are either in the money at settlement or they’re not. There’s no middle ground.

Don’t Expect Typical Prediction Markets Fare from Schwab

Platforms such as Kalshi, Polymarket offer much more than sports event contracts, including scores of derivatives of tied to the world of finances. Those offering include contracts on cryptocurrency and mergers and acquisitions activity as well as derivatives linked to major equity indexes, among others.

Charles Schwab, the founder of the company, is an investor in Kalshi, but even with that, it’s unlikely the brokerage house will follow a Kalshi-esque prediction markets template.

Cboe Also Standoffish Regarding Sports

For multiple reasons, Cboe makes for a logical prediction market partner for Schwab, not the least of which is similar perspectives on sports event contracts. Last November, the exchange operator signaled intent to offer yes/no event contracts based on economic data and financial markets, but sports derivatives weren’t mentioned as part of that plan.

Some exchange operators have taken different approaches. For example, Intercontinental Exchange (NYSE: ICE), the owner of the New York Stock Exchange (NYSE), is the largest investor in Polymarket. Though that prediction market is less sports-centric than rival Kalshi, a considerable portion of its turnover is derived from sports derivatives.

Likewise, CME Group (NASDAQ: CME) is partner of FanDuel Predicts and clears trades for DraftKings Predictions. Those are the prediction markets of the two largest US sportsbook operators.