Prediction markets for hedge funds.
Alpha and tail-risk in a regulated event-contract surface — Kalshi and Polymarket, normalized.
Hedge fund prediction market access without the venue-API undertow. The fund opens its own Kalshi / Polymarket accounts; SimpleFunctions is the software layer above them — research, normalized intents, risk gates, reconciliation. Capital stays at the venue; SimpleFunctions never custodies funds. The infrastructure pitch lives at/institutions; this page is for the PM evaluating mandate fit.
Dutch privateer at dawn — the original alpha hunter at the edge of the chart.
Four sleeves a hedge fund prediction market mandate fills
Most mandates use one or two of these. The fit-test is whether the named exposure is cleaner expressed as a binary contract than as an option, CDS, or futures position.
Data and execution architecture for funds
Five layers, two ownership boundaries. The fund owns Signal and Risk Policy (BYOM and BYOR); SimpleFunctions owns Research, Execution, and the Reconciliation feed; the Venue owns the account and the order book. Capital never leaves the fund’s venue account.
What stays at the venue
The fund’s regulated relationship is with the venue. SimpleFunctions is software in that relationship — never the principal. Five things never leave Kalshi or Polymarket.
Kalshi / Polymarket account
The fund opens its own account at each venue under its own KYC. SimpleFunctions never opens an account on the fund's behalf and never custodies funds. Capital sits in the venue account until the fund withdraws it.
Custody
Capital deposits, withdrawals, and balances live entirely at the venue. SimpleFunctions reads positions and balances through the BYOK credential the fund supplies; it cannot move capital between accounts.
Regulatory relationship
The fund's regulated relationship is with Kalshi (CFTC-regulated DCM) and Polymarket directly. SimpleFunctions is a software vendor in that relationship — not a broker, not an exchange, not an FCM, not a custodian, not a money transmitter.
Settlement
Settlement of every contract is between the fund and the venue. Cash settlement at expiry follows the venue's rules; SimpleFunctions records the event but does not handle funds.
Fee schedule
Venue trading fees are charged by the venue at execution time. SimpleFunctions charges a software subscription for the platform; the platform never charges per-trade commissions.
Disclosure: SimpleFunctions is software, not a broker, exchange, FCM, custodian, money transmitter, or investment adviser. Trading prediction markets carries risk of loss. Funds are responsible for their own regulatory posture, capital adequacy, tax treatment, and LP communication. Nothing on this page is investment advice.
Sample workflows
Two concrete sleeves end-to-end — one event-driven alpha sleeve, one tail-hedge basket. Both run the same five-layer architecture; the difference is sizing, cadence, and acceptable basis risk.
Event-driven alpha sleeve — Fed-cut basket
01Research: pull cross-venue probability for every active Fed-cut contract; cross-reference with the OIS strip via /query-econ02View: encode the desk's thesis (e.g., December cut underpriced by 6pp on Kalshi vs OIS) as a sized view in the fund's model layer03Risk: size by view conviction × fund-side risk policy; verify against the desk's daily-loss and concentration caps04Intent: submit normalized intents with an idempotency key, optional price-trigger, and conservative max-size; runs through dry-run first05Reconcile: hourly pull of fills + open positions back into the fund's OMS; mark-to-current pricing for end-of-day NAV
Tail-hedge sleeve — geopolitical binary basket
01Research: identify a basket of low-probability geopolitical contracts (escalation, treaty failure, sanctions threshold) trading at 3–8¢02View: size each leg as a fraction of the gross hedging budget; the basket is the position, individual legs are insurance premiums03Risk: cap aggregate basket cost as a percentage of fund AUM; rebalance on a fixed cadence (monthly is typical)04Intent: submit small-size intents across the basket; dry-run validates cost and routing; live submission is incremental05Reconcile: track basket carry vs realized payouts; the sleeve's P&L is the difference between premium decay and tail payouts
Liquidity and capacity — the honest version
Kalshi and Polymarket are real venues with real capacity, but the books are not uniform. Five things to know before sizing a fund-grade sleeve.
Per-contract depth
Top 50 markets typically show $50K – $500K resting at top-of-book. Larger sizes execute via incremental orders; the screener exposes per-market depth so the fund can size before it commits.
Total book at market
Aggregate across all tracked Kalshi + Polymarket markets is a meaningful number, but it is not a uniform pool. Liquidity concentrates in the top 20–50 contracts; the long tail is thin and fund-sized orders move it.
Ramp guidance
Most desks ramp over weeks, not days. Start at 10–20% of intended sleeve size, watch slippage on the screener's slippage-adjusted IY, increase only when realized slippage matches the model's assumption.
Basis risk
Binary event contracts settle to a venue-defined event resolution. The fund's underlying exposure may be continuous (a return distribution) — the binary is an approximation. Don't treat a binary as a perfect hedge for a continuous exposure.
Capacity ceiling
For systematic strategies in the top 20 contracts, fund-sized notional is feasible; for long-tail strategies, capacity is mandate-dependent and venue-dependent. Talk to the venue's institutional desk in parallel — Kalshi has one, Polymarket's capacity model is different.
Read next from the library
Matched from SimpleFunctions blog, opinions, technical guides, concepts, and learn pages.
From Boesky to Bots: Porting Hedge Fund Alpha to Prediction Markets
Classic hedge fund strategies map onto Polymarket and Kalshi with surprising fidelity. Ten mappings from cleanest analog to most speculative — Levy, Buffett, Greenblatt, Tartaglia, Griffin, Meriwether, Soros, Taleb — with documented cases, dollar amounts, and the 2024–2026 academic evidence.
Why "Prediction Market Index Funds" Are Mathematically Dubious
Index funds need continuous returns, shared factor exposures, and meaningful weights. Binary prediction-market contracts have none. A naive PM index converges to noise, not a return.
How I track my macro thesis across 49 Kalshi contracts without checking the screen
How I use a causal tree and 15-minute heartbeat to monitor 49 Kalshi contracts for my Iran-oil-recession macro thesis without watching the screen.
Causal trees for prediction markets: turning macro intuition into tradeable structure
Learn how to build causal trees — hierarchical probabilistic models — that turn macro intuition into tradeable prediction market structure on Kalshi and Polymarket.
SimpleFunctions vs Oddpool vs Raw Kalshi API — Which Prediction Market Tool Should You Use?
Compare SimpleFunctions, Oddpool, and raw Kalshi/Polymarket APIs for prediction market trading. Honest breakdown of features, pricing, and when to use each tool.
Event Contract
Event contracts are binary instruments tied to real-world events. Learn how they work on Kalshi and Polymarket.
FAQ
Is it legal for a US hedge fund to trade Kalshi?
Kalshi is a CFTC-regulated designated contract market (DCM); event contracts on Kalshi are regulated derivatives. Most US hedge funds can trade them within the same operational framework as other CFTC-regulated futures and options. Funds should confirm with their counsel and prime broker; SimpleFunctions is not legal advice and is not a fiduciary.
What about Polymarket?
Polymarket is a non-US prediction market venue with a different regulatory posture; US persons access is restricted. Funds with non-US sleeves and the appropriate operating posture do trade Polymarket; a US-only mandate typically uses Kalshi alone. The platform supports either or both — the fund decides which venue's account to bind via BYOK.
How deep is the orderbook on a typical contract?
Top 50 markets typically show $50K – $500K resting at top-of-book; the long tail is meaningfully thinner. The screener exposes per-market depth and a slippage-adjusted yield; size accordingly. Don't assume uniform depth across the venue.
How does a fund actually scale into a position?
Most desks ramp incrementally — 10–20% of intended sleeve size first, observe realized slippage on the screener's slippage-adjusted IY, and increase as the realized number tracks the model. SimpleFunctions intents support price-triggers and idempotency keys, which let a desk script ramp logic without double-fills.
Tax treatment?
Kalshi event contracts are CFTC-regulated derivatives and are typically treated as Section 1256 contracts (60/40 long-term/short-term blend) for US tax purposes; this is the standard CFTC futures treatment. Polymarket's tax treatment is different and depends on the fund's structure. Funds should consult tax counsel; this paragraph is not tax advice.
How does NAV reporting work?
The platform exposes a reconciliation feed (positions, fills, settlements, mark-to-current pricing) on the fund's schedule, in CSV / JSON / Parquet. NAV calculation itself remains with the fund's administrator — the platform supplies the underlying data with venue-side timestamps and an audit trail. Most fund admins ingest this directly.
How does this compare to CDS, options, and futures?
Event contracts pay a fixed dollar on a binary outcome; CDS pays on a credit event with continuous notional; options pay a continuous payoff on price; futures track price linearly. For named-event exposure (election, policy decision, geopolitical breakout), binary contracts are more capital-efficient than options or CDS. For continuous exposures (rates, FX, equity vol), traditional instruments remain the cleaner hedge — the binary is an approximation.
What is the basis risk?
Binary settlement is the main basis. The contract pays on the venue-defined event resolution; the fund's underlying exposure may be a distribution. Two specific cases worth flagging: (1) timing basis — the contract resolves at expiry, the fund's exposure may be continuous through the period; (2) definition basis — the contract's resolution criteria may differ subtly from the fund's economic event. Read the venue's rulebook for every contract you size into.
What is the regulatory framing for LP communication?
For Kalshi: "regulated event contracts on a CFTC-designated contract market." For Polymarket: framing depends on the fund's structure and jurisdiction. Funds typically describe the sleeve as "event-contract derivatives" in offering documents; the platform itself is described as "third-party software for trading and risk-checking event contracts." LPs accept this framing in our experience; confirm with the fund's counsel.
What AUM bands does this fit?
Sub-$100M funds typically use the platform as a research + sizing tool with small live-trading sleeves. $100M – $1B funds run dedicated event-contract sleeves of meaningful size. $1B+ multi-strats run baskets and tail-hedges across both venues, often with capacity coordination through the venue's institutional desk. Capacity is mandate-dependent; we recommend a capacity conversation early in onboarding.
What integrations are needed?
Three layers for a real fund integration: (1) BYOK credential binding for Kalshi and / or Polymarket; (2) reconciliation export wired into the fund-admin pipeline (CSV / Parquet); (3) intent submission either through the platform's REST surface, the agentic CLI, or a custom client. Most desks finish integration within one to two business weeks of dry-run start.
What does the platform actually do during a trade?
It accepts a normalized intent (market, side, size, price, trigger, expiry, idempotency key), runs the fund's configured risk gates, maps the intent to the venue's order shape, submits through the BYOK connection, and surfaces the status state machine + audit record back to the fund. It does not exercise discretion on the fund's capital, does not custody funds, and does not act outside the operator-configured policy.
Related surfaces
Institutional infrastructure
Audit log, BYOK, reconciliation — the software layer between raw venue API and fund operations.
Prediction market hedging
Map real-portfolio exposures to event contracts as binary or basket hedges.
Prediction market execution
Intents, triggers, routing, monitoring — the execution surface fund signals talk to.
Prediction market funds
For GPs raising capital to deploy systematically into Kalshi and Polymarket.
Quant trading
Systematic strategies on Kalshi and Polymarket — backtests, signals, calibration.
Macro traders
Fed cuts, recession, inflation, election, geopolitics — binary contracts on the macro view.
Real-time data API
Sub-second WebSocket and REST surface — the live feed strategies actually consume.