The Midterms Are the First Real Test of Whether Markets Beat Pollsters

In 2024, election contracts became legal in the U.S. only a month before the presidential vote. This time, Kalshi's head of politics growth Benjamin Freeman told CNBC, "there's a much longer runway to plan."

The platforms arrive at the November 3 vote far larger than in 2024. Combined monthly trading volume on prediction markets Kalshi and Polymarket more than doubled from $26 billion in May to $53 billion in July, mostly on sports, according to a Pew Research Center analysis.

Politics is a small slice, averaging about $2 billion a month on Polymarket this year and under $300 million on Kalshi, Pew found. By July, more than $30 million had been traded on which party will win the House and the Senate, CNBC reported.

The Commodity Futures Trading Commission once barred Kalshi from listing contracts on which party would control Congress, finding they involved "gaming," and in 2024 proposed a rule that would have classed election contracts as gaming. It withdrew that proposal in February. On June 10, it published a proposed "structured framework" for event contracts under which elections would not count as gaming, according to a Congressional Research Service analysis.

The proposal also argues that by "harnessing the wisdom of the crowds," event contracts can produce information more reliable than other forecasting methods, CRS noted.

Kalshi's Midterms Hub, launched that month, puts traders' odds for individual races alongside polling averages.

Chuck Todd, the former NBC News political director and Meet the Press moderator, is the official host of the NEXTPredict summit in New York on October 22 and 23. Organizers have also booked CNBC correspondent Contessa Brewer and CNN senior reporter Marshall Cohen around the midterms, putting working reporters on the program beside the exchanges.

Asked by NEXTPredict co-founder Pierre Lindh in a September 18 interview what he wanted to learn there, he framed it as "the pollsters versus the prediction markets."

"How much do they need each other? How much do they feed each other?" Todd said. He also wants to know how much trading is hedging and how much is entertainment. "I'm open minded on this. Is this going to be healthy for politics that it's subject to markets like this, or is it going to create a different class of politician?"

On some races, he has come round. Of the Texas Senate race, where Democrat James Talarico faces Republican Ken Paxton, he said: "I'm with the prediction markets here. I'll be more surprised if Talarico loses than if he wins."

"If I were advising people on prediction markets, the Trump voter tunes in much later than the Democrat," Todd added. "I've seen a lot of September optimism drown in October realism."

Thin congressional markets

A $3,500 bet, the maximum personal campaign contribution under federal law, can move 97% of midterm-related markets by five cents or more, the Anti-Corruption Data Collective found in research shared with CNBC. "The thinness of most congressional markets demonstrates that too often this just doesn't exist," co-director Michael Hornsby said of the active trading needed to correct prices.

"In any liquid market, mispricing is free money on the ground," Kalshi spokesperson Dani Lever said.

Morgan Stanley's Counterpoint Global studied more than 72 million Kalshi trades and found that prices tracked outcomes closely, Decrypt reported. Bank research desks want to know whether market odds are a better read on the world than polling, Lindh said.

Morgan Stanley will lead a panel on institutional capital on the summit's second day, with about 2,500 attendees expected.

That morning, Todd will moderate a session titled "Who Calls the Midterms: Polls, Models or the Markets?" with Columbia University professor Rajiv Sethi, Decision Desk HQ chief elections analyst Geoffrey Skelley and PredictIt CEO John Phillips. The panel will compare where polls, models and prediction markets break down, and which signal to trust when results start coming in on November 3.