Negotiate closely with the CFTC! Kalshi is seeking a regulatory breakthrough and plans to fully expand “never expire” derivatives to the foreign exchange and gold markets

The Zhitong Finance App notes that the prediction market platform Kalshi allows users to bet on various events such as sporting events, election results, and weather. An executive of the company said it is planning to expand its business into unexpired derivatives covering the metals, foreign exchange and energy markets.

The platform aims to compete with traditional exchange operators by offering so-called “perpetual futures.” Unlike traditional derivatives contracts, perpetual futures contracts do not have an expiration date.

Kalshi launched the nation's first perpetual futures contract for cryptocurrency trading in May after the Commodity Futures Trading Commission (CFTC) cleared the barriers to registered US trading venues with such contracts. The executive said the platform is currently seeking regulatory approval to launch these products in other asset classes.

Kalshi's chief risk officer, Udesh Jha, said that in addition to cryptocurrencies, “the other asset classes we are considering are largely market-driven, such as assets such as gold.”

Jia said the company is in in-depth discussions with regulators to seek approval to expand perpetual futures to other asset classes, including foreign exchange and energy.

“Gold is an asset being considered because it is very retail friendly. Our participants tend to be retail investors, but there are also institutional investors.”

Perpetual futures contracts (also known as “perps”) are futures contracts with no expiration date. This means investors can hold positions on an asset indefinitely without closing or rolling over (transferring) positions. Perpetual contracts also allow traders to borrow heavily, sometimes with leverage up to 50 times the contract value to amplify their bets.

Critics warn that such contracts are risky for retail investors because they may not be able to fully understand their complexity, and they may face huge losses if there is even a slight reverse change in price. CME's (CME) outgoing CEO Terry Duffy criticized the CFTC's move to allow perpetual contracts to be launched in June, calling these products a “disaster waiting to happen.”

Since then, CME has sued the CFTC and its chairman Michael Selig, challenging the recent decision to allow Kalshi and cryptocurrency exchange Coinbase to list perpetual futures. Many see the lawsuit as a move to protect CME's position as the number one derivatives exchange in the US.

Jia said Kalshi is also looking at potential opportunities to expand perpetual futures to be linked to broad-based indices and individual stocks. Since the launch of these derivatives on Kalshi, perpetual contracts have contributed $161 billion in trading volume to the platform.

“For most of these asset classes, we have to figure out how to get in, but due to geopolitical and seasonal reasons, forex, metals, and energy are probably the most sought after sectors for investors,” Jia said. “If you look at the trading volume we have, a large part of it comes mainly from institutional investors.”

Competition threats

Kalshi's latest move (previously unreported) comes at a time when traditional derivatives exchanges are grappling with the potential disruption perpetual contracts can bring to their core business.

Following approval of the perpetual contract by the CFTC, stocks of major US exchange operators, including CME, Chicago Options Exchange, NASDAQ, and New York Stock Exchange parent company Intercontinental Exchange (ICE), were immediately sold off, as investors feared increased competition for traditional derivatives.

In June of this year, Kalshi co-founder Tariq Mansour told the media that the company was considering expanding its perpetual futures business, but did not specify which other asset classes the company would target at the time.

The regulator said in June that the CFTC is currently seeking public comment on the possible extension of perpetual contracts to products linked to deliverable or storable energy commodities such as crude oil.

According to a person familiar with the matter, who did not wish to be identified, if approved, perpetual contract transactions for other asset classes will be carried out during regular trading hours rather than around the clock, as these products are still under review.

Until recently, perpetual futures were mainly traded on offshore trading sites. They previously existed in a regulatory grey area and were neither banned nor explicitly approved. According to Kalshi's estimates, perpetual futures trading volume on overseas platforms surged to $90 trillion last year, more than three times the volume traded in 2023.