Market makers might not be the first things casual traders think about, but as prediction markets grow, they are turning to these behind-the-scene players to help bring Wall Street’s efficiency and liquidity to what some are calling a new asset class — and in some cases, America’s favorite pastimes.
The features that make prediction markets better for customers are possible because of market makers. Market makers are companies that trade contracts at public prices. They’re the reasons that ordinary traders can buy and sell contracts at the prices they want – within reason.
Unlike traditional sportsbooks where the house sets odds, prediction market exchanges are peer-to-peer, meaning traders set prices based on what they’re willing to pay. Market makers are the reason that price discovery is possible, especially in the early states of a new market.
CFTC-regulated derivatives exchanges Crypto.com and Kalshi launched event contracts on title winners within two months of the Super Bowl. However, Kalshi and Crypto.com are newcomers to sports prediction markets. Sporttrade has offered prediction markets for sports wagers under state gambling laws since 2022. The company is active in five states and was the first prediction market company to bring institutional market makers on board to provide liquidity to sports betting contracts.
Sporttrade’s Chief Operating Officer, David Huffman, explained the benefits of market makers and why they make prediction markets such good trading platforms.
Market makers are somebody's peers
At a traditional sportsbook, the odds are set by the house. Prediction market prices are set by traders who either get their offers accepted or rejected. That’s why prediction market exchanges are peer-to-peer.
However, trades can’t sell their contracts if there’s no other customer to buy them. A market maker can be that customer, letting ordinary customers buy and sell contracts within a certain price range. Sporttrade not only has two market makers, but the company’s market makers are also investors.
“Because they’re investors in Sporttrade, they’re really motivated to make the exchange work and the price discovery process work and make pricing competitive,” Huffman said.
Price discovery is the process of figuring out what a contract is worth. As traders buy and sell contracts, the market arrives at a price that most traders are willing to trade at. Traders reach the contract price they believe it’s worth instead of the house setting the price for them.
Market makers don’t just make price discovery possible. They make prices more competitive for larger traders. Even though liquidity has diminishing returns – a $10 million market is probably going to have a similar price as a $100 million market – absurdly high liquidity attracts absurdly large bettors.
“If you’re able to take one trade at $50,000 of revenue that it can bring to a platform, that’s a lot more valuable than trying to get 5,000 to bet $10,” Huffman said.
Tight spreads aren’t just for sharps who have a precise price in mind. “For casual bettors, tighter spreads mean better overall odds,” Huffman said. “Conversely, a wider spread may reduce participation, as bettors are less likely to accept unfavorable prices.”
How market makers set their prices
When market makers open their lines, they have to set the first prices. “They’ll take into account where the rest of the market is,” Huffman said. “But then they also have a team of quants and developers and modelers that are building their own algorithms on where they want their pricing to be.”
Since traders haven’t converged on a price when the market first opens, market makers have to offer a range of prices to ensure traders can buy and sell contracts immediately. “Market makers establish their own ‘true’ price for an outcome and then determine the spread they are willing to offer around it—typically ranging from 1% to 3%,” Huffman said. “Several factors influence this decision, including taxes, revenue-sharing agreements, and league fees, all of which affect profitability.”
Making contracts available in different markets isn’t just about what the customer wants immediately. It’s also about catering to customers interested in smaller markets. Listing F1 markets that are more niche increases the likelihood that a customer trades a popular high-profit product like an NFL market. “It keeps customers engaged on the platform, increasing the likelihood that they also place bets on higher-margin markets,” Huffman said.
Venturing into sports
Sporttrade brought sports contracts to the gambling industry, but Crypto.com and Kalshi have pushed sports contracts into finance. The CFTC has already made brokerage Robinhood pause sports trading. Kalshi and Crypto.com’s regulator also asked for additional information explaining how their sports contracts comply with the Commodity Exchange Act, but both platforms still have their sports contracts live.
The CFTC is at a crossroads. It could allow derivatives exchanges to stake a claim to sports or prohibit sports event contracts on federally regulated derivatives exchanges. Sporttrade could shift strategies depending on which direction the CFTC decides to take.
“We’d be late to the party, but we’d probably have to go get a DCM [designated contract market license] and do the same exact thing,” Huffman said. “But I think we’re banking on, and I think based off what we’ve been doing for years is just saying the states have been granted the authority to regulate gaming, and we’re going to follow that.”
Both Sporttrade and Kalshi have made adhering to their industries’ rules, laws, and regulations central to their early growth strategies. Whatever the CFTC decides, Sporttrade will still have access to its five existing markets and the ability to expand to states with favorable regulations. However, Kalshi can offer markets on politics and events tied to the news cycle, giving it greater flexibility in a market that encompasses all 50 states.
Despite being in different industries and, for the moment, competing in sports, Kalshi and Sporttrade share a common goal: educating consumers about the benefits of the prediction market model.
“We’re all competitive against each other at one point, but we’re all kind of trying to prove the same thesis at the same time,” Huffman said. “So being able to amplify that message together is important.”
The prediction market model gives customers better pricing and greater flexibility than traditional bookmakers. Even if the finance industry doesn’t get to keep its claim on sports for the 2026 NFL season, prediction markets will remain disruptive products within the industries in which they compete.
