Front Burner - Why are prediction markets coming to Canada?

Episode Date: June 30, 2026

Investment company Wealthsimple is partnering with Kalshi to launch Wealthsimple Predict. It’s an app that’ll allow Canadians to place bets on things like Bank of Canada interest rates, job numbers and long term weather patterns.This comes at a time where there’s growing scrutiny on prediction markets in the U.S. for misleading advertising and susceptibility to insider trading. So why are young investors, especially Gen Z, fuelling the demand for prediction markets and other high risk and speculative ways to make money? And what are the risks of companies like Wealthsimple leaning into the gamification of the economy?Charles Martineau, Associate Director of Research at the Rotman Financial Innovation Hub at the University of Toronto, joins us to talk about the phenomenon and what the data tells us about who actually wins on prediction markets.For transcripts of Front Burner, please visit: https://www.cbc.ca/radio/frontburner/transcripts

This week on two blocks from the White House. From a $1.8 billion fund that could go to allies to retribution for Republicans who have spoken out against him. With midterm elections coming up, we're asking how far can Donald Trump go without paying a political price? Join me, Paul Hunter, and my fellow Washington correspondents, Katie Simpson and Louis Bluin, as we break down U.S. politics from a Canadian perspective. Find and follow two blocks from the White House wherever you get your podcast.

And watch us on YouTube every Wednesday. is a CBC podcast. Hi, I'm Jason Marcosop, filling in for Jamie Poisson. In the United States, prediction markets, like Pauley Market and Calci, allow you to bet on everything from Trump's next move, how hot it will be in Paris tomorrow, or if your California town will get destroyed by a wildfire. But they haven't been widely available to Canadians. That's about to change. Investment company Well Simple announced earlier this month that they'll be partnering with CalChi to launch Well Simple predict.

It's an app that will allow Canadians to place bets on certain things, like Bank of Canada interest rates, job numbers, and long-term weather patterns. Well, simple in Calshare, not alone. Quest trade is also seeking approval to launch a similar product. This comes at a time when there's growing scrutiny on prediction markets for misleading advertising and risk of insider trading. And according to a report by our guest today, dismal chances of actually making any money. So then why are young investors, especially Gen Z,

fueling the demand for prediction markets. And what happens when companies like WellSymbol lean in to the gamification of the economy? I'm going to talk about all that with Charles Martina. He's the Associate Director of Research at the Rotman Financial Innovation Hub at the University of Toronto. Hi, Charles.

Hi, thanks for having me. Thanks for coming on. So to start off, what do you make the move by Wealth Symbol to venture into prediction markets? Why is an investment app venturing into this kind of market wagering? When I've learned about wealth simple, now providing clients, well, the investors that portion to bet on prediction markets, my priors was like, I think this was actually quite bad.

But I want to have to be very careful because it's not like a very black or white situation here. There's all a bit more nuances. My main concern is, especially for the young people, I don't want people to stop doing traditional investment to build long-term wealth and then shift their investing towards prediction markets. That was my biggest concern with perdition market being offered to gain investors. Now, why I said it actually might not be as bad as we think is because if prediction markets, people would argue that it provides a hedge for investors. If you want to hedge some certain risk, for instance, if you own a mortgage with a variable rates and you're afraid that the Bank of Canada will increase rates next month or the couple

next months, then one could just turn on a prediction market and bet on the fact that the bank of Canada might increase the rate. So it can provide a form of hedging to investors. I want to talk to you about the restrictions on the Canadian market. But first, let's take a step back. And can you explain to me how prediction market bets or contracts work? I mean, from what I read, basically, they're not really like just straight bet on the blue jays to break their losing street tonight. Can you explain how they're different from like straight sports betting?

Yeah, there's no bookie. So the main difference with prediction markets, say, versus the year classical sports gambling website that would be drafting bet 365, the scores, is that there are no bookie. So prediction markets are objective. The platform, the objective is to match a buyer and a seller. So the platform doesn't take the counter position, right? So, and how prediction markets like to sell themselves to be very different from other sports gambling website is they will say, well, classical sports gambling website,

if you're really good better, that platform or that sports gambling website will act like a bookie will give you worse odds or might actually kick you out from the platform. because if you're too good, prediction market platform, that's not what they do. Their objective is to find out on the buyer and it's not to match them. So that's their main big difference between prediction market versus traditional sports gambling websites. So these markets have a risky reputation, but Wealth Simple says they are looking out for its clients with, quote,

education and guardrails built in from day one. Also that they have risk reminders and warnings. And what really sets it apart from the U.S. versions of Calshire Polymarket is that wealth simple predicting Canada won't allow bets on politics, sports, or entertainment. In the U.S., you can put money on pretty much anything. Sports. The Iran conflict. Will Trump say Sleepy Joe this week?

Even mentions whether someone will say a particular word. In Canada, the scope will be more limited, with regulators only approving contracts on climate, financial markets, or economic indicators. That's what Well Simple will offer through Kalshi. And contracts will have to be for events occurring at least 30 days later. That means you can't start one now on what the weather will be like in Toronto tomorrow. Do you think these Canadian markets will be less risky?

When I've learned the fact that sports-related questions will not be part of the platform of prediction markets offered by wealth simple, right away, I felt, okay, this is at least a good guardrail to protect against young people developing more maybe gambling addictions. because we know that these prediction market platform, based on my research, 40% of their revenues comes on sports-related questions. And also something that's well simple as saying is that they will offer some form of sort of an exam or questionnaire before somebody can actually start betting on that platform to make sure they understand what they're doing. But again, those sort of question and tests, maybe it's a great guardrail, but I've not seen what are those questions.

The way I see it is these platform are trying to play it safe and just to provide the regulators a viewpoints, okay, we want to provide a set of questions that, yes, they're definitely not sexy. We probably these are the sort of question that people can use as a form of hedging, more than investing. But at the same time, they're putting their foot in the door, and then eventually they might go back to regulators and see, look, everything is going well. And they'll maybe be able to tweak the rules a little bit to gradually offer more categories

of question down the road. So we haven't seen the official launch of these prediction markets in Canada, but that hasn't stopped Polymarket. They were heading a flyers at Blue Jays games in Toronto, even though it's banned in this province. What kind of access is there for Canadians to prediction markets like Calci and Polymarket up at this point? So Calci for sure, you cannot participate because you have to be a U.S. resident. So that's for sure. But for Polymarket, yes, in Ontario, even if you use a virtual private network, a VPN, you won't be able to access the platform. But with my co-authors, one is based in Montreal.

And for our own research, because we had collected all the data that we could put our hands on polymarket, my co-author is based in Quebec. And he had no problem to access polymarket with a VPN. Have these apps always been banned in Canada and parts of Canada? And why has Canada up until now not permitted them? So first of all, prediction market is not a new thing. It's like a pretty old thing, right? You can even go back to the late 1800s to find evidence of prediction markets on bidding on, like, say, U.S. election.

So this idea of prediction market is not new. But when it comes to Canada, the somewhat of a similar market to prediction markets is what we call the binary options. So people can take a bet in the option markets on, say, will the S&P 500 or the TSX go up by X percent tomorrow? So this in 2017, the regulars in Canada has banned these markets. and they only allow these sort of betting to have a 30-day maturity. So because prediction markets, you can take a bet. Right away, the way the prediction markets can take a bet on something happening tomorrow. That's very similar to what we've banned in 2017 when it comes to these option markets.

So they bundle prediction markets and options together and they said, no, we're not going to authorize prediction markets. So how does this fit into what Well Simple's been doing since coming on the scene a decade ago, is this financial tech company? As one of Canada's most innovative online investment services, wealth simple is an example of fintech innovation at its finest. Hitting a billion dollars in assets is no small feat for any company, let alone one that's only two years old. To put it mildly, the success of this business has turned heads all over the world. To Mike and the whole team, it's been largely targeting millennials and younger investors. I mean, I remember this ad from a few years ago, I'm not sure if you do. for their crypto business with cavemen inventing the wheel and others.

Reney saying this is a fat or Ponzi scheme. I call it the wheel. Should we burn them? Let's just undermine them. Make them feel weird. I don't totally understand it. My friend Leanne's really into it. She's super smart.

She got me into shoes really early. Oh, yeah. She was way early up shoes. What if there are two wheels? Interesting to look at that in retrospect. But tell me about wealth simple and where they fit in the space. and why they, of all, people, are going into prediction markets. And I think if I was one of the CEO of Wealth Simple,

I would be very tempted to go into prediction markets because the young people are not inclined to start investing traditional markets anymore. Michael Catchin is the CEO and founder of Wealth Simple, a financial tech company that didn't just push the envelope back in 2014. It replaced it using a paperless online-only method of investing. His marketing strategy target millennials. Am I one of those people that's like keeping some old dinosaur outdated establishment alive?

Now nearly a decade later, wealth simple has more than three million clients and manages more than $20 billion in assets. They're far more inclined and far more interested to invest in high variance bets. That's their interest. And so these platforms, in order to grow their pool of investors, they have to be. cater to their preferences. So it makes total sense for them to go and try to introduce prediction markets in Canada. For instance, in my class, I teach fourth year undergrad and for their final exam. Actually, I don't have a final exam. It's a final project. And I tell the students, you have to write a kind of a mini academic paper and you can choose any topic that is finance

related. Well, more than 20% of my students chose sports gambling or prediction markets. Jacqueline Furland Smith, a 40-year-old former Canadian military trainer, moves to Costa Rica to follow her dreams, but in the summer of 2021, vanishes without a trace. How can a woman just go missing and us put out all that effort to find her, and she's still missing? I'm David Rigen, and this is Someone Knows Something, Season 10, the Jacqueline Furland Smith case.

Listen, ad-free on Amazon music. Broadly speaking, how have you come to understand the rise in popularity of prediction markets? What led to the rise of prediction markets, I think, is twofold. First, it's, well, at least in the U.S., a lot of people prefer to bet on sports through prediction markets than classical sports-gobbing website. I think also what led to the rise of prediction markets, and especially the way I see prediction market advertised to the young people, is really to cater to their nihilism, their economic anxiety.

So what I see now with young people is that they are facing more labor market constraint. It's really hard to buy a home, very low steady wage growth. So I think a lot of people have lost faith in the traditional way to invest your money. And so therefore they might say, you know what, let's try to swing for the fences and let's go bet on high variance bets. Because anyways, they probably know they have no expected outcome of winning. But they also feel that the counterpart, which is building your wealth in the traditional way is also out of reach. Do you view these prediction markets as an investor tool or as gambling?

Or maybe it's a false binary? Gambling, yes, especially if you don't use it as an investment tool for hedging. So for sure, my research I've shown is that if you think you can build long-term wealth by bidding on prediction market, the answer is no. Okay, there are only few people can make a lot of money on these platform, are those who are either extremely lucky, extremely skillful, but you don't know, so you don't know if it's skill or luck.

There's very few of them, or they behave as what we call liquidity providers. So they're the ones who make markets. I can go in details on this a bit later because it's a little bit technical, but there are just very few who makes money. So in fact, only 30% of people make money on that platform,

but all the wealth is captured by 1% of the winners. Yeah, I want to talk you about your research on this. So you've done this deep dive with some other academics. Only a third of people actually make money on it. Yeah. And when you said one third makes money, keep in mind that only among only one percent of all these people that make money out of this 30 percent, like if you look at all the gains, you look at all the winners, take one percent of the winners.

They're the one to grab more pretty much all of the gains. And if you look at their like their properties of who are these people, right? They either made a lot of money because they took, they took like one big bet. and you don't, it's really hard for us to infer is it just luck or skill? But most of them, they make money because they behave as liquidity providers. So they make markets. The same way as you go, let's say you want to exchange your currency into an FX booth, right? When you exchange your exchange your game dollars to the US dollar, the price that they quote at you, they quote an ask and a bid price.

Well, the people that do the same thing on prediction markets are the one who make their money because they're collecting all these transaction fees from investors. And something that's really interesting on the platform is that if you look at all those who lost money, roughly 19% of people that lose money, they actually take the right side of the bet, but they lose money because they pay a transaction fee. So odds are low that you're going to make money. How does that compare to just retail investors, kind of average Joe's day trading or playing the stock markets versus the big institutional investors who probably make all the money? Yeah, so if you want to compare to day traders, so if there's one classic study in finance that goes back into the, I think it was in the early 2000 by researchers called Brad Barber and Terry O'Dine, they've shown that when online, when it was easy for investors to trade online because the transaction fees were much lower, which was a great investment in finance, right, because you pay lower transaction fees to trade, but because people were able to see online in real time a lot of information about their portfolio. many people develop a tendency of being overconfident. They have a feeling that I can actually control what they see out there. And they got engaged into day trading.

And those who did a lot of day trading versus those who maybe trade once a month, the performance of day traders are far inferior to those who would just trade very infrequently. Now, my concern, the same thing with preaction markets is that when you start to introduce like every day, this short horizon trading assets, I'm pretty sure some people will develop the same tendency as those who behave like day traders. We've talked about how this is, you know, very big in the U.S. right now, but there are a whole bunch of concerns south border about how this is structured. And we did an episode a little while back ago about concerns about insider trading

within the Trump administration. For example, a U.S. soldier was directly involved in the capture of Venezuelan President Nicholas Maduro. charged for making a polymarket bet on that. Cali she's CEO, Tariq Mansour, was questioned on CNBC recently about what his platform is doing to prevent people with insider information placing bets. And he seemed to struggle to answer questions about that. How much of a concern is insider trading when it comes to prediction markets? So insider trading, so it's interesting that people talk about insider trading in prediction markets because insider trading happens in

every asset classes, right? It's not a new thing. It still happens in equity markets. So it's not a new thing. So one thing for sure that we've found in our research, if you look at those guys who make a lot of money, the top 100 winners, none of them, we would, none of them suggest that they were insiders. So the insider risk is actually lower than we think. However, that should not stop platform to try to combat insider trading. But it's, it's not. an easy thing. Because to try to prosecute somebody for insider trading, you need a lot of evidence. Sometimes it's really flagrant, like the U.S. soldier, for instance. A special forces soldier has been arrested after allegedly making more than $400,000

betting on polymarket over whether Venezuelan president Nicolas Maduro would be removed from office. This soldier, Gannon Ken Van Dyke, is alleged to have participated in the planning and execution of that operation that captured Maduro, the Justice Department tonight. but it takes a lot of effort from the platform to combat insider trading, but that's something that the government should keep pushing on to make sure, because inside trade does not occur. Now, in Canada, the, again, if you exclude questions that are related to politics, and so sort of insider trading related to politics, yeah, it won't occur.

But let's say, take economic questions, say inflation, right? So you can have somebody at the bank of Canada. If he knows the number is coming up, that person, could trade, right? But then that would be a bit foolish because these platform, they know where these, these platforms, like I'm pretty well-f simple, they have the employment history of people because wealth simple did say that they will look at your income, who you work for, and then if they see large bets coming from somebody who works at the Bank of Canada, especially before the release of inflation numbers, there's a high chance it's inside your trading.

So the Wall Street Journal put out a report about social media ads that Polly Market was putting out, that make it to seem like real influencers were making large sums of money on bets they've placed, only for those to be proven completely fake. So now Polly Market is being sued by the National Association of Consumer Advocates, to call these ads flagrantly deceptive. And they're being reportedly investigated

by the Commodities Futures Trading Commission. From what you know on your research on prediction markets, what are the dangers of this kind of the hype machine behind it? Yeah, so when, One ad that comes to mine is actually it was from Kalshi. And then the ad was saying it was on TikTok that I've seen.

And it was a lady that was saying, hey, look, I was taking some bets on the weather in my town for next week. I've made more money than me driving Uber. This is a great side gig. What's my favorite market to trade on Kalshi? Culture. Everyone's out there trading sports.

I'm trading on the Kalshi culture market. Oscars for Best Actress. I saw Hamnet. I cried. I would put everything I own on that confident. There is run. There's best supporting actor who's going to win the Bachelorette season 22. There's so many options.

I don't know why more people aren't doing this. Like, I literally made $761.7. Like, I'm not a traitor or anything. My friend literally just told me about this app called Kalshi. You basically pick what you think is going to happen in real life. So it's, it's, yeah, false or like, whether there was like false or not, the, just the fact that they are trying to promote this as a potential side gig for people is very damaging because there's like, well, I've shown my research, these platform, it's really hard for somebody

to make long-term wealth with this, right? It won't compensate for a, like, you're better off working at a minimum salary job. You'll make more money there than you're going to be on pressure market. So my concern with these advertisement is that, yeah, he really tried to sell this idea as a really successful side gig for people, but it's not. So, and then the fact that they decide to make some advertisements that is false, well, that's even more damaging because, yeah, they're really faking. They're really giving the impression to the young people that you can actually make a lot of money.

You know, I imagine there'll be so many guys on this, but I wonder where it's going Canada. The regulators are creating this very narrow prediction market. But could this be the first step that they're going to use to maybe later on down the road, let people in Canada trade on political outcomes and celebrity breakups? I'm pretty, well, I'm pretty sure that's the platform's potentially long-term wish, because whatever it takes to build a larger pool of participant on their platform, that's what they need. But at the same time, maybe not.

Maybe they will stick to economic-related questions and finance question. And magically, these people will bet on these questions on these questions as a, a hedging tool more than a betting tool. And if that's the case, honestly, that could be actually quite good. That's what, other of my colleagues here, that's what they like prediction market for. It's really from an hedging perspective.

Yeah, but if they, I want, I'll be curious to know how the regulator responds because they'll, they'll want those young people who are betting on those other things. Mm-hmm. Yep. Charles, thank you so much for this really interesting conversation.

Appreciate it. My pleasure. That's all for today. I'm Jason Marcosaw. Talk to you tomorrow. For more CBC podcasts, go to cbc.ca.ca.com.