FanDuel is making stock betting easier. That's a risk for Wall Street
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FanDuel is making events-based betting more accessible through a partnership with CME Group. Users would be allowed to bet on everything from how high the stock market goes to interest rate decisions from the Federal Reserve.
Why it matters: This is the latest tool rolled out to consumers that looks more like gambling than investing. If these tools attract would-be investors away from stocks, that could have serious implications for the market.
What they're saying: "It can move markets in one aspect; its money flows somewhere," says Jessica Inskip, director of investor research at StockBrokers.com and co-host of "The Market MakeHer Podcast."
- "Maybe people go out of tech because there's a big campaign, because a lot of people made money on event-based trading," she adds, referring to FanDuel's ability to market more directly to consumers.
- If event-based contracts grow in popularity and receive significant inflows, that could take money away from other markets.
- This has already happened in the options market off of big events like Fed decision days, when volume surges.
- Inskip stresses that the impact seems minimal right now, but could grow alongside the popularity of events-based trading.
Reality check: Brokerages like Interactive Brokers already offer events-based contracts to clients as a way to hedge their investments.
- If an investor is concerned about the impact of a Fed decision day on their portfolio, for example, they can hedge the outcome of that event through these kinds of contracts.
Yes, but: FanDuel is "not the right place" for that kind of investment tool because the firm "already encourages gambling," Inskip says.
- FanDuel referred Axios to its press release, which included the CME Group CEO referencing demand from investors for "new financial opportunities."
- Still, FanDuel, unlike Interactive Brokers, is not an actual brokerage, which means users can't look across their portfolio to determine how exposed their portfolios are to broader market swings.
Zoom in: "It's almost like this gambling mentality," Inskip says, adding that "things like this only reinforce the negative feelings or connotations that people have of the market."
- The association of FanDuel with gambling, and now with the market, she says, could leave consumers associating gambling with investing and dissuade them from getting invested in more traditional asset classes that could be used to build real wealth.
What we're watching: Events-based contracts are still pending regulatory review from the Commodity Futures Trading Commission.
Be smart: This comes as retail investors are already increasingly driving the broader market, with options flows coming from retail more than institutional investors recently.
- As technology improves and markets become more accessible, retail will only have a larger and larger footprint.
