Prediction markets, where users bet on everything from election outcomes to weather events, have exploded in popularity. But can they attract big institutional players like hedge funds? A major challenge is liquidity—many contracts are thinly traded and volumes are shallow. Enter Susquehanna International Group, the giant quantitative trading firm known for market making in options and ETFs. In a recent episode of Bloomberg's Odd Lots podcast, the firm revealed it is building a prediction market business to address these very issues.
Susquehanna's strategy involves providing liquidity and acting as a market maker for event contracts, aiming to improve bid-ask spreads and volume. The firm sees prediction markets as a natural extension of its core competencies in pricing risk and managing complex portfolios. However, institutional adoption faces hurdles: regulatory uncertainty, limited product selection, and the challenge of hedging long-tail events. Susquehanna's involvement could be a pivotal step toward making prediction markets a mainstream asset class.
"We think there's a real opportunity to bring institutional-grade market making to this space," said a Susquehanna executive on the podcast. "If you can solve the liquidity problem, the demand is there."
The firm is focusing on markets with verifiable outcomes and sufficient public interest, such as sports, finance, and politics. While AI is not the primary subject here, the story underscores the evolution of financial technology and the growing intersection of trading and alternative data.