Key facts
- Charles Schwab is collaborating with Cboe Global Markets to introduce new binary options contracts.
- These contracts will allow customers to wager on whether the S&P 500 will close above or below a specified price.
- The products are designed as 'all-or-nothing' options, offering a set cash settlement or expiring worthless.
- A 'Plus Zone' feature will provide partial payouts for predictions that are close to the target outcome.
- Schwab intends to focus these contracts on financial market events, differentiating from political or sports wagers.
- This initiative marks Schwab's entry into the prediction market space, a rapidly growing area for retail traders.
Charles Schwab is set to enter the prediction market arena by launching 'yes-or-no' binary options contracts tied to the S&P 500's closing price, in partnership with Cboe Global Markets. These contracts will offer a fixed cash settlement if the index closes above or below a predetermined level, and nothing if the prediction is incorrect. Schwab also plans a version with a 'plus zone' feature, providing partial payouts for predictions that are close but not exact.
The move signifies a strategic shift for Schwab, particularly for CEO Rick Wurster, who has previously voiced skepticism about event contracts, especially those linked to sports and entertainment, viewing them as blurring the lines between gambling and investing. By focusing on financial outcomes like the S&P 500's close, Schwab aims to navigate the complex regulatory landscape and avoid the legal challenges that rivals such as Kalshi and Polymarket are currently facing from state lawsuits accusing them of operating unlicensed sportsbooks.
Schwab's entry into this space brings its substantial client base, estimated at $13 trillion in assets and tens of millions of brokerage accounts, to the prediction contract market. This initiative follows Schwab's recent expansion into offering spot bitcoin and ether trading, reflecting an effort to retain retail traders within its platform. Other competitors, including Robinhood, Interactive Brokers, and Coinbase, have also been expanding their event-contract offerings.