Crypto.com will allow prediction market traders to make trades on margin, allowing users to bet more than they deposit, via a new predictions-only app, the business announced via press release Tuesday.
The exchange is launching OG, a new app that is focused on predictions, with contracts on sports as well as financial, political, cultural, and entertainment events.
The app would be the first prediction market to allow users to trade on margin.
“OG also plans to provide access to CDNA’s margin prediction contracts offering through Crypto.com’s federally licensed futures commission merchant,” the press release said. “This will be the first prediction markets platform to offer margin trading.”
What is trading on margin?
When a trader bets on margin, also known as leveraged trading, they borrow funds from a broker in order to buy a larger quantity of an asset than they might otherwise be able to purchase. Because they have to pay back the funds they borrowed, this process exposes the trader to the potential of higher returns but also puts them at risk of losses that greatly exceed the amount deposited.
For example, if a trader wants to buy 10,000 contracts worth 50 cents each, but does not want to deposit the required $5,000, they could put up $1,000 and borrow the remaining $4,000. If the contracts won, resolving at $1 each, the trader would win $10,000 and have to pay back $4,000, giving them a $6,000 profit on their original stake.
However, if the contracts lost, they would all return nothing, meaning that the trader would lose their $1,000 stake and have to pay back the $4,000 borrowed, resulting in a total loss of $5,000 on a bet that only required $1,000 to be put up.
Brokers are generally required to make sure that traders understand the risks involved before they start trading with margin.
While margin trading is common in the financial world, it is virtually unheard of in regulated sports betting, largely due to the potential risks of allowing a bettor to lose more than they deposit.
The use of borrowed funds to fund traditional sportsbook accounts is heavily restricted in many legal sports betting states, and there is no state where regulated sportsbooks can offer direct margin trades in the way that financial institutions do.
Seemingly not just for market makers
Margin trading for large market makers had been floated as a concept to allow for greater liquidity on parlays. These bets are often at longer odds, so the “no” side has to put up much more money on every trade. A market maker taking the “no” side on a full NFL Sunday worth of parlays would have to put up enough money to cover every possible combination a user bets on hitting, even though the chances of each one actually paying out would be infinitesimally small.
However, the fact that trading on margin will be possible within the OG app suggests that it will not simply be available to the largest market makers, as they are unlikely to trade using the app, and instead will be available to ordinary customers.
Even allowing the largest market makers to trade on margin can come with risks. Writing about the subject in his newsletter Fifty Cent Dollars, former Kalshi employee Adhi Rajaprabhakaran said that even offering margin to highly capitalized and sophisticated market makers has to be executed carefully.
“We saw how this plays out in the worst possible way with FTX: private credit lines and opaque interdependencies turned into systemic failure,” he wrote. “That history matters. Any credit‑line program needs ironclad guardrails: audited capital tests, conservative haircuts, realtime reporting, instant kill switches, and legal arrangements that make recovery practicable rather than aspirational.”
Johnson warned of margined predictions
In her farewell address in September, outgoing Commodity Futures Trading Commission (CFTC) Commissioner Kristin Johnson warned about the possibility of prediction markets offering margined contracts to retail traders.
“As of today, we have too few guardrails and too little visibility into the prediction market landscape,” she said. “Because the target audience for these contracts is retail customers and some market participants seem to be marching down a path to offer leveraged, margined prediction market contacts to retail investors, there is an urgent need for the Commission to express in a clear voice our expectations related to these contracts.”
Last week, CFTC Chair Michael Selig said that he was directing the agency to write new rules for prediction markets. However, he did not provide any detail about what these rules might involve.
Crypto.com submitted a change in its rulebook to the CFTC concerning users’ position limits Monday. That rule change, which appears to help facilitate margin trading, is subject to a 10-working-day review, meaning it could come into effect by Feb. 16 if the government shutdown does not delay the review process.
App will feature parlays, VIPs, social features
The new app from Crypto.com, which is already live, will also feature parlays and a “social layer.” The app says it is only available in “certain locations,” with Arizona and New York not allowed. Crypto.com also withdrew its sports contracts from Nevada in November following a court ruling, but it appears that the app will still be available there.
“Crypto.com was the first company to offer federally licensed sports prediction contracts in the United States, so launching OG is very fitting,” Nick Lundgren, CEO of OG, said in the press release. “We have tremendous momentum and expertise to establish OG as a market leader for consumers in this deca-billion dollar industry and have had excellent success with our prediction markets partners.”
Lundgren added that sports would be a focus on the new app. Its homepage highlights sporting events, and this Sunday’s Super Bowl in particular.
“Sports are the natural hub of prediction markets, and we see a massive opportunity to provide fans with an all-encompassing platform where it pays to be right,” he said. “I am thrilled to be leading OG and establishing this new era of prediction markets that will include parlays, margin trading, and a dynamic social layer.”
Small print on the web version of the app also refers to features called “Takes,” “Pros play,” and “Call your shots,” which appear to be related to the social features.
The app will also include a “best-in-class VIP program,” which would seemingly offer benefits to large traders. The first million customers to sign up with the new app will also receive “up to $500 in rewards.”
Earlier this year, Kalshi began offering “Platinum” status to “all high value players,” including those who buy sports event contracts.
The app will focus on the U.S. at first but there will be “plans to expand globally in the near future.”
