On Wednesday, Elon Musk retweeted Kalshi’s prediction market forecasting the amount of government spending Trump and Musk would cut in 2025. It’s Musk’s latest endorsement of prediction markets since he praised Polymarket’s election markets in the weeks leading up to the 2024 presidential election.
Interesting https://t.co/SvJOq9jz8z
— Elon Musk (@elonmusk) February 5, 2025
Kalshi is a CFTC-regulated prediction market company that offers event contracts on a wide range of topics, from strike outcomes to commodity prices. The event contracts traded in these markets serve the dual purpose of hedging and forecasting. Three of Kalshi’s markets show the range of hedging possibilities available to traders and companies.
How much government spending will Trump and Musk cut?
Background: Trump tasked Musk with cutting government spending, creating an advisory committee called the Department of Government Efficiency (DOGE).
How to Forecast: From the end of November 2024 through January 2025, Kalshi traders forecasted around $200 billion in spending cuts in 2025. That estimate spiked to $300 billion in early February after federal workers began accepting Musk’s buyout plan. Kalshi’s estimate has bounced between $250 and $300 billion from Feb. 2 to Feb. 6, showing uncertainty but capturing a range of spending cuts that Trump and Musk could make before the end of the year.
How to Hedge: Non-profit heads who expect their federal contracts to be among DOGE’s spending cuts could buy event contracts based on the amount of funding they believe is at risk. A non-profit could buy the dollar amount it’s willing to lose and expect a payout if the spending cuts reach the settlement threshold. Individual federal workers could use personal funds to make a similar trade in this market or the one on the number of jobs DOGE cuts.
When will the writer’s strike end?
Background: The 2023 Writers Strike began on May 2, 2023 and ended on Sept. 27, 2023. The Writers Guild of America (WGA) demanded better compensation and limits on the use of AI in written material.
How to Forecast: Kalshi’s writer’s strike market showed a range of possible resolution dates. The further out the settlement date, the more likely the strike was to resolve. After talks stalled at the end of August, the odds of the strike ending by Sept. 30 fell from 51% on Aug. 24 to a low of 12.5% on Sept. 8. However, the odds of a resolution by Dec. 1 were 67%.
While September’s resolution took the market by surprise, Kalshi’s traders still gave a rough picture of the state of the strike as it drew to a close.
How to Hedge: Production companies could’ve bought contracts on the end of the strike to profit from its end. That purchase would’ve offset the losses from the writer’s strike. A company could choose how soon it thought the strike would end to account for the amount of risk it was willing to take.
Will gas prices be higher this week than last week?
Background: Kalshi offers weekly markets on whether gas will be more expensive than the previous week. The markets are settled based on AAA’s website.
How to Forecast: During the week of Feb. 3, gas prices were expected to be higher than $3.098. The market opened with a 79% chance of gas being more expensive than the week before. By Thursday, those chances had increased to about 88%.
How to Hedge: Drivers who are concerned about their gas bills can buy contracts to cash out if gas becomes more expensive than the week before. Truckers who drive professionally and ordinary people concerned about their gas prices could hedge against the risk of more expensive gas.
