Betting on Kalshi Isn't Investing: What the 2026 Data Shows

In August, Devin moved $600 out of his savings account and into Kalshi, the prediction market app his group chat wouldn't stop talking about. He'd read that it was a regulated exchange, that you traded "contracts" and not bets, and that there was no house taking a cut of every wager. Six weeks of NFL games and a few cheap "yes" contracts on long shots later, he had $212 left. (Devin is a composite, but his fall looks a lot like the numbers below.)

Prediction markets are having a huge year, and with the November 3 midterm elections a month away, the ads are about to get louder. So it's worth asking the question Devin skipped: is putting money on Kalshi or Polymarket anything like investing? The 2026 research is pretty clear that it isn't, and it also shows who ends up with the money.

What a prediction market is

A prediction market lets you buy a contract on whether something will happen. Will the Chiefs win Sunday? Will a certain party win the House? Will the Fed move rates in December? Each contract pays $1 if you're right and $0 if you're wrong, and it trades somewhere between 1 cent and 99 cents before the event.

Kalshi has been regulated by the Commodity Futures Trading Commission as a designated contract market since 2020, and a U.S. arm of Polymarket got the same designation in July 2025, according to economists at University College Dublin. That federal license is why the apps call themselves exchanges and why you can use them in states where sports betting is still illegal.

The growth has been wild. Trading volume on Kalshi and Polymarket hit $24.2 billion in April 2026, up from $1.8 billion a year earlier, according to Wall Street Journal figures cited by the Roosevelt Institute. Kalshi alone handled about 90% of the U.S. market by May.

Who's on the other side of your trade

The apps' best sales line is that you're betting against other people, with no house setting the odds against you. That's technically true. In practice, the other person is often a professional.

On Kalshi, "makers" post prices into an order book and "takers" accept them. Most casual users are takers: they open the app, see a price, and tap buy. Makers tend to be trading firms with models, paid data feeds, and software that places thousands of orders a day. The Journal described one firm spending more than $200,000 a year on data and servers.

When the UCD economists Constantin Bürgi, Wanying Deng, and Karl Whelan studied more than 300,000 Kalshi contracts in a paper published in February 2026, they found takers lost almost 32% on average. Makers lost about 10%. The average contract, before Kalshi's fees, returned about minus 20%.

A sportsbook at least limits or bans sharp bettors who win too often. Prediction markets don't, which means the sharps stay in the pool and keep taking the other side of your hunches. Kalshi itself has acknowledged that nearly three times as many people lose money on the platform as make it, the Roosevelt Institute reported.

The numbers on who wins and who loses

I went into this expecting the losses to look like ordinary gambling. They look worse.

The Roosevelt Institute analyzed more than 400 million Kalshi trades from the app's July 2021 launch through May 15, 2026. It estimated that retail traders lost $583.5 million in that stretch, and $371.6 million of it came from sports. The average bet was $75.20, which tells you this is mostly regular people with regular amounts of money.

A March 2026 report from Citizens JMP, which used transaction data from the analytics firm Juice Reel, compared prediction markets with legal sportsbooks from July 2025 through mid-March 2026. The median prediction market user returned minus 8%. The median sportsbook user returned minus 5%. The only group that made money on prediction markets was people trading more than $500,000, who earned a median 2.6%. Users trading under $100 lost a median 26.8%.

And on October 1, TheStreet reported a BadCredit.org survey in which 79% of prediction market users said they'd lost money in the past year, and 27% said they'd lost more than $500. The survey also found 44% were using the apps to try to make extra income.

The long-shot trap

The single most expensive habit on these apps is buying cheap contracts on unlikely events. A 5-cent "yes" on a 30-point comeback feels low risk. You're only out a nickel, and the payoff is twenty to one.

The UCD researchers found the prices on cheap contracts run too high. People overrate small chances, so a contract priced at 5 cents might win only about 2% of the time. Run that out. If you spend $100 on 5-cent contracts, you own 2,000 of them. If 2% hit, 40 pay out $1 each. You get $40 back and you're down $60, a 60% loss, which is the example the researchers used in their write-up.

The expensive side does the opposite. A 95-cent contract that wins 98% of the time earns a small, steady profit, and the people buying those are mostly the pros. So the longshot habit that feels cheap is how retail money ends up in a trading firm's account.

Parlays (bets that need several things to happen at once) are the same trap in a different outfit. Sportico reported that Kalshi's retail users lost about $117 million on parlays between January 1 and April 30, 2026.

Borrowed money makes it worse

The BadCredit.org survey had one finding that worried me more than the losses: 51% of users said they'd paid for bets with a credit card, a personal loan, or other borrowed money. Of those, 88% lost.

If you lose 8% on a bet funded by a card charging 22% interest, the bet cost you more than 8%. You've also turned a weekend's entertainment into a balance that follows you for months. Some issuers treat funding a betting account as a cash advance, which starts charging interest right away, so check how your card codes it before you ever link one.

Even the taxes are unsettled

If you do win, the IRS wants its share, and nobody's sure how to calculate it. As CNBC reported in December 2025, the IRS hasn't issued guidance on whether prediction market profits count as capital gains or gambling winnings, and tax preparers have split on it.

The difference is real money. If your contracts are treated as gambling, the 2026 tax law lets you deduct only 90% of your losses, and only if you itemize. Most people take the standard deduction, which means they could owe tax on gross winnings even in a year they lost overall. Several tax-prep guides note that Kalshi doesn't issue a 1099 covering event-contract trading gains, so you'd need to keep your own records. If your activity was more than a few small bets, talk to a tax pro before you file.

So is it ever okay?

Sure, as entertainment. Some people spend $40 on a concert ticket and some people spend $40 on whether a senator holds her seat. If it's money you'd be fine never seeing again, it comes out of your fun budget, and you can stop at the number you set, it's a hobby.

The problem is the framing. Calling a bet a "trade" and an app an "exchange" makes it sound like the thing you do with your Roth IRA. It isn't. An index fund owns pieces of companies that earn profits, so the whole pool of investors can come out ahead over time. A prediction market is zero-sum before fees, and the data says the pros take most of what's on the table.

If you're using these apps because investing felt out of reach, it's more accessible than it looks. You can open a brokerage account and buy a broad index fund with a few dollars, and the long-run odds there aren't tilted toward a trading firm with a $200,000 data budget.

Bottom Line

Prediction markets are a form of betting, and in 2026 the typical user is losing more than the typical sportsbook customer. Here's what to do this week if you've got an account or you're tempted to open one before Election Day.

1. Pull your real number. Download your Kalshi or Polymarket transaction history and add up deposits minus withdrawals since you started. The total is your real result, whatever your memory of the big wins says.
2. Set a monthly cap and move it to a separate account. Pick an amount you'd spend on a night out (say $50), transfer only that, and turn off auto-deposits.
3. Unlink every credit card. Fund bets only with cash you already have, and check whether your issuer treats betting deposits as cash advances.
4. Redirect the rest. Whatever you were putting in beyond your cap, set up an automatic transfer of that amount into an index fund or high-yield savings account instead.

If betting stops feeling like fun, or you're chasing losses, the National Council on Problem Gambling runs a free, confidential helpline at 1-800-GAMBLER.