Launch HN: Kalshi (YC W19) – A regulated exchange for trading on events

Hi HN! Tarek and Luana here, co-founders of Kalshi (https://kalshi.com/hn), a financial exchange that allows you to trade on the outcome of events.

Everyone faces different risks: inflation, extreme weather, mortgage rates, Supreme Court decisions, student debt, and more. Our mission is to allow people and businesses to mitigate risks that relate to them.

We got into finance early during our time at MIT. Tarek worked at Goldman and Citadel, Luana worked at Bridgewater and Citadel. We noticed something common across all these places: a lot of trading stemmed from an opinion on a future event. For example, a lot of activity at Goldman at the time was focused on providing institutions with exposure to, or a hedge against, Brexit. To do this, we’d sell them complicated financial bundles (a bunch of swaps, options, etc.) at a high price… but these bundles were proxies: basically, a bunch of risk curves fitted together to approximate the binary/event exposure the customers were looking for. What you couldn’t do was just trade directly on the event itself, even though that would have been simpler and cheaper and was what people actually wanted. The option just didn’t exist.

Once we identified the problem, we noticed it everywhere. The more we thought about it, the more the idea of an exchange for people to trade directly on events seemed obvious. That was the inspiration for Kalshi’s event contracts.

We give people the ability to trade based on their opinions about a specific yes-or-no question. For example, if you have student debt and are worried about relief not passing, you can purchase a contract and get a payout even if it doesn’t pass. If you’re worried about the economic fallout of another lockdown, you can place a trade to hedge against it. If you’ve developed a model on inflation, you can profit from that….and maybe even offset your rising costs.

Our markets are phrased as simple yes/no questions. For example, “Will the Fed raise interest rates next month?”. Users place orders on either the Yes or the No side and choose a price to purchase the contract between 1c and 99c. When there is a Yes order and a No order on both sides where the prices sum to $1, a trade is formed. When the event happens or doesn’t happen, based on criteria clearly defined in our contracts up front, we give back that $1 to whoever was right. The way our markets are structured means these trades are fully collateralized—there’s no margin or leverage on our platform.

The price that a given event contract trades at is actually the market’s assessment of the probability that the event will happen. If something happens that should increase the probability, people will start paying more for Yes contracts, raising the price. This market determination of the likelihood of an event has made Kalshi the most accurate place for predicting where inflation will be next month: https://kalshi.com/forecasts/inflation. People have been building forecasting dashboards on all sorts of things based on our data, including Bloomberg and news outlets.

Before Kalshi, markets that allowed you to trade on economically relevant events were illegal or unregulated. From day 1, we decided to take the harder path: build a fully regulated exchange with a deep commitment to compliance. We spent almost 3 years working with the CFTC to develop our exchange, contracts, market structure, surveillance, and compliance programs to provide a safe, secure and orderly market. This finally led to us getting federal approval to launch the first regulated exchange for this new asset class.

This path incurred the risk of launching later than anyone who opted to eschew regulatory approval. We chose the hard path because we want to develop this asset class in a way that is safe and responsible, which we see as the only way to build for the long term. We make money the way most exchanges do: we take a small fee on each transaction on our platform (none of the weird order flow or other stuff).

Our markets are liquid, have been around for over a year now, are fully regulated (as mentioned), and expanding. We’ve got over 70 markets live, many inspired by requests from our users. Here are some of the markets we’ve had so far: Will there be a Moon landing by 2025? [1] What will monthly inflation be? [2] Will there be a recession in 2023? [3] Will a new COVID variant of concern be identified? [4] We’d love to hear your suggestions for others!

You can access our platform through the web, iOS, Android, and our API - you can sign up at https://kalshi.com/hn and place your first trade in minutes. We recently launched our mobile app after months of hard work, which you can download at https://kalshi.app.link/hn.

We’d love to hear your feedback and ideas and look forward to a good discussion in the comments!

[1] https://kalshi.com/events/MOON-25/markets/MOON-25

[2] https://kalshi.com/events/CPI-22NOV/markets/CPI-22NOV-T0.2

[3] https://kalshi.com/events/RECSSNBER-23/markets/RECSSNBER-23

[4] https://kalshi.com/events/COVVC-23MAR1/markets/COVVC-23MAR1