Predictions markets are becoming “retail’s shiny new toy,” Barclays analysts said, noting their surging popularity versus other speculative investments.

Monthly notional volume for predictions platforms have skyrocketed since the 2024 presidential election, with an explosion of growth last fall, the analysts said in a report Tuesday.

They said prediction markets are close competitors to leveraged exchange-traded products, which are high-risk investments that use debt and derivatives to multiply returns based on the daily performance of specific assets.

As of this year, monthly notional volume for prediction markets is not far behind leveraged exchange-traded products, and are comparable to index and single-stock call overwrite strategies, which commonly use call-selling to produce returns.

Retail participation in derivatives markets has increased in recent years, the analysts said. Those investors make up the majority of participants in zero-day to expiration options, or 0DTE options, in the S&P 500, which is responsible for over half of total S&P options volume. 

Speculative urges often drive retail participants into once uncharted territory. Five years ago, retail investors fueled the meme stock surge in GameStop and other speculative names and pushed crypto mainstream. The volume of 0DTE options grew in early 2023 as well after Cboe Global Markets launched the option on the S&P 500 Index. 

Prediction markets are taking the spotlight now because it is accessible, said Jeff Kilburg, the founder, CEO and CIO of boutique asset management company KKM Financial, citing the platform’s binary outcomes and the “broad diversification” of events to trade as examples of why it might be more approachable.

“It’s a totally different animal,” he said. 

Leading prediction market platforms Kalshi and Polymarket’s total notional volume sit at more than $24 billion as of April, up from less than $5 billion a year ago, according to data from Dune Analytics.

Barclays analysts noted that the majority of the volume is focused on non-economic outcomes, with sport contracts making up the majority leading on both Kalshi and Polymarket.

Still, even with this rapid growth, prediction markets failed to compete against flagship retail products such as S&P’s ODTE options, the Barclays analysts said. Total value traded on the S&P 0DTE market was nearly $57 trillion in March, they said. 

Kilburg doesn’t see the AI bubble driving the growing interest in prediction markets. Instead, he suggests prediction markets have reached this milestone because of its viral appeal with younger generations.

A Northwestern Mutual study from earlier this year found nearly a third of Gen Z and almost a quarter of millennials are currently placing money into prediction markets or sports betting or considering participating in these activities.

Kilburg said prediction markets can be a “bridge” to trading equity markets. He expects traders can use it as a start to first grasp the “remarkably accessible” platforms before taking on high risk, zero-day options.

“It excites me,” he said. “The more people in the market, the better. In the beauty of the markets, there’s no discrimination on age.” 

Disclosure: CNBC and Kalshi have a commercial relationship that includes customer acquisition and a minority investment.