Prediction markets have captured the attention of retail traders, and Cboe Global Markets believes they could serve a purpose beyond offering simple yes-or-no bets.

JJ Kinahan, Head of Retail Expansion and Alternative Investment Products at Cboe, discussed prediction markets with Bill Cody, Cboe’s Director of Sales & Institutional Relationship Management and incoming president of the Security Traders Association of New York, during STANY’s annual meeting on Tuesday.

“I’ve never seen a product in all my years that has been so driven by retail as we’ve seen with prediction markets,” Kinahan said.

Cboe recently launched Cboe Predicts, which allows investors to take positions based on whether a particular market outcome will occur. The straightforward structure and relatively low cost have helped make the products attractive to retail traders.

Kinahan said he believes “straight prediction markets” as currently structured could be hard-pressed to continue to grow over the long term. Cboe therefore wants to use their popularity as a bridge into options trading and investor education.

Cboe is planning a product called the Plus Zone, which Kinahan described as a more accessible way of presenting a basic options spread. Rather than requiring an investor to be completely correct about a yes-or-no outcome, the structure would allow for some flexibility.

“In options, you don’t have to be fully right in order to make money,” Kinahan said, adding that traders need only be generally correct about the direction.

Kinahan said Cboe intends to support the product with education, helping newer traders understand what they have traded and how similar strategies can be used elsewhere in the market.

He noted that retail investors could eventually apply those concepts to companies that are already heavily traded by retail investors, such as Apple and Nvidia.

Kinahan pushed back against the frequent characterization of younger retail traders as gamblers. While acknowledging that some people misuse every type of financial product, he said younger investors are often more thoughtful and curious than they are given credit for.

The industry also sends younger investors conflicting messages about risk, Kinahan added. “We tell people when they’re young to take more risk, and then when they take risk, we tell them they’re bad for taking risk,” he said.

He noted that many younger traders already have long-term investments through retirement accounts, even if they also choose to take greater risks elsewhere. Rather than discouraging them from participating, Kinahan said the industry should help them better understand those risks.

“Of course, we want the product to be successful for Cboe,” he said. “But what we also want is retail traders to be successful, because that’s good for everybody.”

This article was generated with the assistance of Google Gemini. The content was reviewed, edited, and fact-checked by Traders Magazine editorial staff.