Can You Really Trade on the Future?

From billion-dollar bets to binary options, prediction markets are stepping into the spotlight. Scott Bauer of Prosper Trading Academy joins Jeff Praissman to explore whether traders can actually profit from forecasting — and what these new products mean for traditional markets.

Summary – IBKR Podcasts Ep. 304

The following is a summary of a live audio recording and may contain errors in spelling or grammar. Although IBKR has edited for clarity no material changes have been made.

Jeff Praissman 

Hi everyone. This is Jeff Praissman with the Interactive Brokers Podcast. It’s my pleasure to welcome back Scott Bauer from Prosper Trading Academy. Hey Scott, how are you? 

Scott Bauer 

Yes, Jeff. I’m great, and just hoping for a Cubs win later today. 

Jeff Praissman 

Well, unfortunately, my Phillies don’t seem to be getting it done. 

Scott Bauer 

Yep. 

Jeff Praissman 

But you know, it’s great — we have you in about every other Wednesday just to kind of go over the market from the week before and what you see ahead. Always appreciate you coming by. For our listeners, you can find more from Scott at prospertradingacademy.com and also on our website under Education. But you know, Scott, I want to take a little different twist this time around. Last week, the Intercontinental Exchange made a pretty big announcement — they’re making a $2 billion investment in Polymarket, which, for those that aren’t familiar, is a prediction market platform. 

These prediction markets and event contracts are becoming more and more popular in the mainstream. Interactive Brokers offers access to ForecastX contracts and the CME event contracts — cash fees, you know, advertising all over the place, it seems. In your opinion, how do these prediction markets correlate with more traditional market instruments like equities and options? And do you see more of the exchanges getting involved with these down the road? 

Scott Bauer 

You know, I think it’s just an extension of what we already have. Especially, you know, I think Intercontinental Exchange, Polymarket, Kalshi — they probably all looked at the massive rise of these zero-DTE options in the SPX that came out, and the necessity because of the demand for these types of — I’m not going to call them bets, because as a trader we never like to say anybody’s making a bet — but these types of strategies that are very binary and maybe short term in nature. So when I see these prediction markets come out — and again, you mentioned CME, CME has them — they’re available across a wide array of products where you can take a position on whether the S&P is going to close above or below a certain price, gold is, you know, whatever it might be. 

And I think that’s all because of the demand of the marketplace right now. So I do think they’re highly correlated, and I wouldn’t be surprised if we start to see more and more similar type products being rolled out. 

Jeff Praissman 

And you know, I can’t have you on without talking about the VIX. Yesterday we got about a 6% pop out of the VIX. You think the vol is going to continue to rise in the immediate future? 

Scott Bauer 

You know, it’s really interesting because if you look at the vol curve in the VIX — if you look at the futures curve going out — it’s pretty flat. So that pop that we saw was really short term, meaning that maybe retail or people thought that something was going to happen imminently or really in the next week or so, whether the market was at a top, something with the shutdown, or whatever it might be. 

But going out, those futures are pretty steady, pretty flat. Now, I would expect vol to stay pretty level and maybe tick up a little bit. I don’t think it’s coming down anytime soon. 

Jeff Praissman 

And you know, another podcast, another 52-week high in the S&P. 

Scott Bauer 

Oh. 

Jeff Praissman 

Is this the top? 

Scott Bauer 

You know, my magic eight ball has been wrong the last eight times or so. You know, it’s crazy. This is a Teflon market, Jeff. It really is. The trend has certainly been to the upside. At some point, we know that’s going to reverse — but what’s it going to take? This market has been thrown so many curveballs, and yet we continue to move higher. Maybe it’s the lofty expectations coming into earnings season — maybe that’s going to do it a little bit — but boy oh boy, you just can’t bet against the trend right now. 

Jeff Praissman 

Yeah, and you know, earnings are starting to trickle in a little bit, but I think most people consider next week really the start of it. On the 14th we’ve got some big hitters — JP Morgan, Goldman, Citi, Wells Fargo. What’s the market expecting from the financial sector coming up? 

Scott Bauer 

You know what, like I just said, it’s pretty optimistic. In fact, eight of the eleven S&P 500 sectors are projected to report pretty big year-over-year earnings growth — and that’s led by the financials, also led by the tech sector. 

So especially when you look at the big guys — Goldman Sachs, JP Morgan, Morgan Stanley — those are the ones that are going to be the bellwethers that really kind of lead the charge here. But as I said, there’s a lot of optimism, which is really different than what we’ve seen over the last year when there’s been some pessimism coming into earnings season. 

Jeff Praissman 

Yeah. And then, you know, we always talk — obviously AI is a huge subject in the financials — but is there a sector that you think might be flying under the radar that could have a big market effect this earnings season? 

Scott Bauer 

Sure, yeah. And you know, it kind of goes along with the AI that you just mentioned, but because AI companies are really increasing their power consumption daily — I mean, there’s talk about this all over the place, driving global electricity demand — I think you have to look at utilities. The old, stodgy utility group that people would look to in times of inflation or for dividends — I think that is the one sector that can really benefit from this uptick in power consumption that we’re going to see. 

Jeff Praissman 

So really, an old classic investment could become the new, you know, newfangled— 

Scott Bauer 

Exactly. Exactly. 

Jeff Praissman 

And finally, I want to wrap it up with — the Fed’s going to release their minutes today at 2:00 PM Eastern time from the September meeting. Is the market sentiment looking for anything specific, or is it sort of just expecting no surprises or changes? 

Scott Bauer 

I think the market would like to see no dissension. So more of all the Fed governors coming together and saying, “Okay, we’re all in the same camp — whether we believe that we need to have two or three cuts coming up.” 

The fact that it would be — I don’t want to say unanimous — but a really concerted effort or opinion that they’re all in the same camp of either cutting or not cutting — and it would be cutting — I think that’s what the market is expecting. No more of this dissension where you have a couple of the Fed heads, as I call them, saying, “You know what, we don’t need to cut rates now.” 

Jeff Praissman 

Scott, this has been great. Thank you so much for stopping by. I love these short, precise conversations we have regarding the markets on Wednesdays. And for our listeners, again, you can find more from Scott at Prosper Trading Academy, as well as on our website under Education. He contributes articles, webinars, and podcasts as well. 

Scott Bauer 

Really appreciate it, Jeff.