Kalshi Market Makers: Who Quotes The Prices You Trade
Every price on a Kalshi board was put there by a person or a firm with a reason. The Kalshi market maker question is really two questions stacked on top of each other: who is quoting the prices you trade, and what happens to a market when nobody does. The answer to the first includes a firm that shares an owner with the exchange itself, Kalshi Trading, and federal regulators have now proposed rules to constrain that arrangement. The most revealing fact in the whole story is why they stopped short of banning it, and this page is built around that reason.
The Quick Answer
A market maker on Kalshi is a trader, usually a professional firm, that continuously offers to both buy and sell a contract, earning the gap between its two prices in exchange for being there when you want in or out. One of those firms, Kalshi Trading, is an affiliate of the exchange itself, and the CFTC has proposed, not adopted, rules that would put affiliates last in line, force them to quote both sides, and strip any fee or speed advantage. What a maker actually does, every constraint in the proposal, the parlay exemption, and the reason the regulator refuses to simply ban the practice are all below.
What A Market Maker Actually Does
Strip the jargon and a market maker is the person at the flea market who will buy your watch and sell you a watch, at two different prices, all day long. On an exchange, that means posting two orders at once on the same contract: a bid to buy and an offer to sell, with a gap between them. Quote a contract at 40 cents bid and 44 cents offered, the book's way of saying the outcome is somewhere between a 40% and a 44% chance, and anyone who wants in right now pays 44 while anyone who wants out right now collects 40. When both sides of that quote get hit over time, the maker pockets the 4-cent difference. That gap, the spread, is the maker's payment for standing there.
The spread is not a giveaway to the maker, because the two sides rarely arrive together. Sell 500 contracts at 44 cents with no buyer yet lined up on the other side and the maker is now carrying a position it never wanted, on a question it may have no strong opinion about. If news moves the true probability to 60 while it holds a short position from 44, it wears that loss. That exposure is called inventory risk, and it is the whole reason spreads exist: the maker charges the gap because it is compensating itself for the risk of getting stuck holding one side. The wider the uncertainty and the thinner the crowd, the wider the gap it demands. Our maker vs. taker breakdown covers the same distinction from your side of the book, because on Kalshi any trader who rests a limit order is briefly playing this role, and Kalshi's fee schedule even prices the two roles differently.
Hold onto that flea-market picture, because the entire regulatory fight is about one detail: what if the person quoting both sides of the watch also owns the flea market?
Why A Thin Book Needs A Maker At All
Before the conflict, the dependency. An exchange matches customers with each other, as we cover in how prediction markets work, and that design has a failure mode: a contract only trades when someone happens to be on the other side at a price you would accept. On a contract about Thursday's high temperature in a mid-size city, the honest state of natural demand is often two bored orders sitting 35 cents apart.
A book like that is not really a market yet. Want to buy when the best offer is 60 cents, an implied 60%, on a question worth closer to 30%? You either pay double or wait, and what the price on the screen means breaks down entirely when the last trade is hours old. Worse, once you hold a position, exiting requires a counterparty too, so a thin book can trap you in a contract you are right about. A maker quoting 28 bid, 33 offered, pinning the question inside a 28% to 33% band, turns that dead board into something a person can actually use: a price to get in near, a price to get out near, at a cost measured in cents rather than dimes. This is why liquidity decides whether you can trade at all, and it is why exchanges everywhere, from stock markets to event markets, court professional makers rather than merely tolerating them.
Kalshi's answer to the thin-book problem included building a maker of its own.
Kalshi Trading: The Exchange's Own Maker
Kalshi Trading is a trading arm affiliated with Kalshi, and its function is the one described above: provide liquidity on the exchange's own markets so that books have quotes in them. When you trade on Kalshi, the counterparty is another market participant, and as we detail in our look at who is actually on the other side of a Kalshi trade, that participant can be a firm affiliated with the venue itself.
Here is the honest boundary of what anyone outside the company can tell you: Kalshi does not disclose which markets its affiliate participates in, and neither will we. Any article claiming Kalshi Trading is on the other side of your specific order is asserting something its author cannot know. What is public is the structure: the exchange runs the venue, collects trading fees, and is affiliated with a firm trading on that venue for its own account, which sits alongside the fee engine we walk through in our breakdown of what Kalshi actually charges.
The structure is the thing regulators noticed, and their description of the problem is blunter than anything a critic has written.
The Conflict, In The Regulator's Own Words
An exchange is not just a business. As a CFTC-designated contract market it is also a front-line regulator of its own venue, responsible for surveilling trading and disciplining abuse. One sentence from the agency carries the whole tension: "[An] exchange's self-regulatory functions run directly against its commercial interest in the affiliate's trading."
Read that plainly. The referee employs one of the players. Nobody has to allege a single bad trade for that to be worth fixing; the arrangement itself puts the exchange's duty and its earnings in the same room. Our view: that sentence is exactly right, the conflict is real and structural, and pretending otherwise would insult the reader. What matters is what the regulator decided to do about it, because the obvious remedy, banning affiliates outright, is the one it declined.
What The CFTC Has Proposed, And What It Has Not
First, the status, because most coverage garbles it. In a notice of proposed rulemaking posted to the Federal Register, reported by Sportico's Dan Bernstein in "Prediction Market Affiliated Trading Arm Rules Proposal, Explained," the CFTC opened a 60-day public comment period that closes October 5. It is a proposal. It is not a rule, not law, and not in force, and the agency is under no obligation to adopt any of it. Even after a final version, another 30 to 60 days would pass before anything took effect. Any page telling you the CFTC "has banned" or "now requires" anything here is wrong on the record.
What the agency proposed is a set of constraints that would let affiliated makers exist while removing every way the house's own player could cut the line:
| Proposed Constraint | What it would mean in practice |
|---|---|
| Last Priority On Resting Orders At Every Price Point | If you and the affiliate both rest orders at 44 cents, you get filled first, even if the affiliate posted before you did |
| Continuous Two-Sided Quotations | The affiliate would have to quote both yes and no, earning only the bid/ask spread, not sniping one side when it likes an outcome |
| No Fee Discount, No Latency Advantage | The affiliate would pay what you pay and see the book no faster than you see it |
| Separate Software, Staff, And Office Space | A wall between the people running the exchange and the people trading on it |
| Plain-Language Disclosure In The App | The affiliate would be named alongside every market it operates in, in "plain language reasonably understandable to a non-specialist" |
| Independent Third-Party Surveillance | An outside monitor watching the affiliate's trading, with periodic reports to the CFTC |
The queue-priority line is the one to sit with, because it inverts the affiliate's natural advantage. Order books normally reward whoever posts first at a price; this proposal would send the exchange's own firm to the back of the line at every price point, permanently. Paired with mandatory two-sided quoting, the affiliate would be structurally confined to the flea-market role, paid the spread for being present, rather than free to bet one side of a question.
One carve-out deserves its own sentence: the two-sided requirement would not apply to parlays, which execute through a request-for-quote mechanism rather than a standing order book. That exemption is bigger than it sounds, because Sportico notes parlays exceed 30% of volume at some exchanges and are the most reliable market-maker revenue stream. Sportsbook parlays price legs the same one-at-a-time way, which is why our parlay builder has you assemble a ticket leg by leg instead of accepting a pre-bundled price.
Why The Regulator Will Not Just Ban Them
Here is the payoff promised at the top. The CFTC considered prohibition and called it "the most disruptive" option, reasoning that removing affiliated makers could leave markets too thin for users to enter or exit near a reasonable price. That is the thin-book problem from earlier, stated by the regulator: strip the makers out and the 28-33 market collapses back into two bored orders 35 cents apart, which protects no one.
So the agency is openly trading off two harms. Allow affiliates freely and the referee's employer has a player on the field. Ban them and the field may be unplayable. The proposal's answer, constrain rather than prohibit, is a bet that queue penalties, forced two-sided quotes, walls, and outside surveillance can keep the liquidity while draining the conflict. Reasonable people can disagree about whether that bet lands, and the comment period exists for exactly that argument. But a reader who understands the trade-off knows more than one who read a headline in either direction.
At Least Six Exchanges, Not One
By its own account, the CFTC is aware of at least six exchanges permitting affiliated principal trading. Named or reported alongside Kalshi are Novig, whose Manhattan Athletic Group trades on its Ludlow Exchange, DraftKings, Crypto.com, Polymarket, and Susquehanna, the trading giant that holds 45% of the Rothera exchange in a joint venture with Robinhood. DraftKings went further than defending the practice, urging the CFTC to "take a permissive approach to vertical integration" and calling affiliated trading "even more compelling" than trading on independent platforms.
The Susquehanna arrangement is the one that shows where the industry is heading: there the affiliated trader is not a side project of an exchange but one of the world's largest trading firms co-owning the venue outright. Whatever rule emerges will govern that structure everywhere, which is why reading this as a Kalshi scandal misses the story. It is the architecture of the entire regulated event-contract industry, being negotiated in public, right now. A disclosure of our own belongs here rather than in a footer: we have no affiliate or commercial relationship with Kalshi, and we do carry sign-up offers for some other prediction-market and betting platforms, including Polymarket, so where venues are compared on this site, judge our framing with that in mind.
A Worked Example: What The Spread Costs When You Trade
Bring it back to the 40-44 quote from the top, because the maker's economics are also your costs. Cross the spread on that book, buying at 44 and later exiting at the 40 bid with nothing changed, and the round trip costs 4 cents on a position worth less than a dollar, roughly 9% of your stake, before Kalshi's trading fees. In a market where the whole question is worth a few cents, crossing the spread for an instant fill can cost more than the opinion was worth; an instant fill usually means you paid for it. And on weather boards there is no injury report and no locker-room leak, every participant is reading the same publicly funded forecast, so patience at the order book, not information, is the only lever a newcomer actually holds. Resting a limit order inside the spread, one of the order types Kalshi supports, makes the market's structure work for you instead, and it is a structural choice rather than a personality trait.
The other lesson from the maker's side of the desk is the shape of risk on these boards. Selling an unlikely outcome collects a small premium and risks most of a dollar, and roughly speaking one loss erases the premiums from about 11 wins. Professional makers survive that arithmetic with sizing discipline and two-sided books; a reader copying the sell-the-longshot half without the discipline half is the failure mode we most want this page to prevent. We trade Kalshi's weather markets ourselves, we hold positions in them, and that arithmetic, not any hit rate, is the entire game.
Where This Leaves You
The prices you trade on Kalshi are quoted substantially by professionals, sometimes including the exchange's own affiliate, and a regulator is now deciding, in public, how tightly to fence that arrangement. The honest summary of the proposal is neither scandal nor exoneration: the conflict is real enough that the CFTC wrote it down in one unsparing sentence, and the liquidity those makers provide is real enough that the same agency refused to remove them. Both facts fit on one page. You just read them.
If temperature ladders are where you want to watch these mechanics live, start with how these markets work on our standing weather hub. And the discipline transfers: on the sportsbook side, the gap between venues' prices is the same spread problem wearing a different jersey, and shopping it is the same discipline our free expert picks today page shows in the open and the OddsShopper Pro toolset is built around. Pro comes with a free week, a full 7-day free trial, and if you stay past it, code MAKER20 takes 20% off your first payment.
Disclosure
We trade Kalshi's weather markets and hold positions in them; where we describe maker behavior, we are describing a role we sometimes occupy. This is an open research log of an approach that has not yet earned any confidence claim, and nothing on this page is trading advice, a pick, or a recommendation. We have no affiliate or commercial relationship with Kalshi; we do carry sign-up offers for some other prediction-market and betting platforms. Kalshi contracts are CFTC-regulated event derivatives traded on a designated contract market, not sportsbook wagers, and they can lose everything you paid for them. Kalshi offers broad, state-specific availability under federal oversight; you must be 18 or older to trade, and the risk of loss is real.
FAQ: Kalshi Market Makers
What is Kalshi Trading? Kalshi Trading is a trading arm affiliated with Kalshi, the exchange, and its function is to provide liquidity by quoting markets on the venue. Kalshi does not disclose which specific markets it participates in, so claims that it is on the other side of any particular order are speculation.
Who provides liquidity on Kalshi? A mix of participants: professional market-making firms including the exchange's own affiliate, and ordinary traders whose resting limit orders make prices too. Every filled trade has another participant on the other side, never "the house" in the sportsbook sense of a book banking your loss by default.
Is a prediction market market maker the same as one on a stock exchange? The role is identical, quote both sides, earn the spread, carry inventory risk, but event contracts expire at $1 or $0 on a single question, so a maker's inventory risk resolves in days or hours rather than being hedgeable indefinitely. The affiliation question is also sharper here, since several event exchanges are affiliated with firms trading on their own venues.
Did the CFTC ban affiliated market makers? No. The CFTC issued a proposal, open for public comment through October 5, that would constrain affiliates: last priority in the order queue, mandatory two-sided quotes, no fee or latency perks, separated staff and systems, plain-language disclosure, and independent surveillance. It explicitly declined to propose a ban, warning that removing affiliated makers could leave markets too thin to enter or exit at a reasonable price.
