Latest / The Day Trading Podcast with Fexingo: Active Trading, Charts, and Short-Term Market Strategy / Why Day Traders Are Watching Kalshi Perps
Transcript
- Lucas: So Kalshi's new perps product crossed one billion dollars in volume within a week of launch. That's not a headline you see every day for a prediction market. Luna: A billion dollars — in a week. And Kalshi isn't exactly Coinbase. Their whole thing is event contracts, right? 'Will the Fed cut rates in June?' — that kind of binary bet. Lucas: Exactly. Event-driven binary options. But perps — perpetual futures — are a different animal. They're continuous, they trade with leverage, and they're the backbone of crypto derivatives. Kalshi bringing them into regulated, us dollar denominated markets is a big deal. Luna: And it's happening while the VIX is spiking — twenty point four two as of today's close, up twenty-seven percent in five days. The Nasdaq dropped four point four percent this week. That's a volatility regime that loves leveraged products. Lucas: Right. The environment matters. When the VIX is below 15, perps are kind of boring — low premiums, low urgency. But at 20 and climbing, the demand for convex instruments surges. Traders want something that amplifies moves, and Kalshi just gave them a new tool. Luna: So what exactly is a Kalshi perp? Because I think a lot of our listeners know crypto perps from Binance or dYdX, but this is different. Lucas: Structurally it's the same idea — a futures contract with no expiry. You hold it as long as you want, and there's a funding rate that flips based on which side is more leveraged. But Kalshi's perps settle in dollars, not crypto, and they're listed on a cftc regulated exchange. That means no 24/7 trading — they run during US market hours — and no crypto wallet nonsense. Luna: So the settlement is in USD, the leverage is capped, and it's during US hours. That's almost like a hybrid between a traditional futures contract and a crypto perp. Lucas: Exactly. And the underlying is a prediction market price — say, 'Will the S&P 500 close above 7400 by June 19?' That's an event contract. The perp tracks the implied probability of that event in real time, with leverage. So you're not betting on the index itself — you're betting on what the market thinks the index will do. Luna: That's a subtle but important difference. You're trading the crowd's forecast, not the underlying asset. So if you think the market is overpricing a crash, you short the perp and collect funding if the crowd gets too bearish. Lucas: Exactly. And the billion-dollar volume in week one tells you there's appetite. The question is: should day traders care? I think yes — because it's a new source of dispersion. Luna: Dispersion — you mean the divergence between different assets or instruments? Like how the Nasdaq dropped four percent but the Dow was flat? Lucas: Exactly. The Dow is actually up point four percent over five days while the Nasdaq is off four point four. That's a massive spread. Normally in a sell-off, everything drops together. But this week, money rotated into value — banks, energy — and out of tech. That kind of dispersion creates opportunities for perps, because you can take views on individual event contracts without trading the whole index. Luna: So instead of shorting the Nasdaq via QQQ, you could short a perp on a Nasdaq-related event — say, 'Will the Nasdaq close below 25,000 by Friday?' — and use leverage to get a bigger bang for your buck. Lucas: Right. And the funding rate becomes a signal. If a perp is trading at a premium to the underlying probability, it means leveraged longs are paying to hold. That's a bearish signal. If it's at a discount, shorts are paying — bullish signal. Day traders can use that as a real-time sentiment gauge. Luna: That sounds a lot like the VIX futures term structure. When VIX futures are in contango — higher than spot — it's bullish for volatility sellers. When they're in backwardation — spot higher than futures — it's a fear spike. Lucas: Exactly the same logic. And right now, the VVIX — which is the volatility of the VIX — is at ninety-seven point five seven, up almost nine percent in five days. That's elevated but not extreme. So the vol of vol environment is spicy but not panicked. That's actually the sweet spot for perps: enough movement to generate funding rate swings, but not so much that the whole thing blows up. Luna: So how would you actually trade this as a day trader? Give us a concrete example. Lucas: Let's say you think the S&P 500 is going to bounce after this week's sell-off. The S&P is at 7,387, down two point two percent over five days. You could buy a perp on the event 'Will the S&P close above 7,400 by June 16?' If the perp is trading at 30 cents — meaning a thirty percent implied probability — and you think it should be 50 cents, you buy. You put up margin, use maybe 5x leverage, and if the index rallies, the perp price moves up fast. Plus, if the crowd gets more bearish, the funding rate flips in your favor — shorts pay you to hold. Luna: And if you're wrong? If the sell-off continues? Lucas: Then the perp drops and you get liquidated if your margin isn't sufficient. Same risk as any leveraged product. But the key is position sizing. With VVIX at 97, the vol of vol is high — so expect wider swings. You don't want to go all-in. Maybe 2-3 percent of your trading capital per position. Luna: That's responsible. So let's talk about the elephant in the room: is this just gambling? Because prediction markets have a whiff of speculation to them. Lucas: I think the line between trading and gambling is always about edge. If you're buying a perp because you have a view on the underlying event — based on data, analysis, or a model — that's trading. If you're buying because you saw a tweet and you're YOLOing, that's gambling. Kalshi perps are just a tool. They can be used both ways. But for a day trader who understands funding rates, implied probabilities, and vol regimes, they offer a new way to express a view without buying or shorting stocks directly. Luna: And the billion-dollar volume suggests a lot of people think they have that edge, or at least want to try. Lucas: Right. And it's not just retail. I imagine some small hedge funds are already dipping in. The liquidity is decent — the top contracts have tight spreads. It's early, but it's growing fast. Luna: Speaking of growth, you know what else keeps something like this going? Listener support. And I'm saying that because we've been doing this show for a while now, ad-free, and it's because of people like you in the audience. Lucas: Yeah, that's true. A couple of dollars a month is genuinely what keeps these going — buy me a coffee dot com slash fexingo, if you've gotten something out of them. It's not much, but it adds up and lets us keep doing deep dives without sponsorship noise. Luna: Exactly. No pressure, just if it's useful. And we're back to the perps in a second. Lucas: So where do we go from here? I think the next few weeks will tell us whether these perps are a fad or a permanent fixture. If volume stays above half a billion per week after the VIX settles down, that's real adoption. Luna: And if the VIX stays elevated — which it might, given the Nasdaq weakness and the Fed uncertainty — then perps could become a go-to for short-term hedges. Lucas: Exactly. One thing to watch: the correlation between Kalshi perp funding rates and the VIX futures curve. If they start moving together, it means the same traders are using both. That would be a sign that prediction market perps are integrating into the broader derivatives ecosystem. Luna: So maybe the takeaway is: keep Kalshi on your radar, but don't jump in blind. Understand the funding rate mechanics, size small, and treat it like any other leveraged instrument. Lucas: I'd add: watch the VVIX. When vol of vol is high, perps can whip around hard. But when it's low, they're a quieter edge. Right now it's in between — which might be the perfect testing ground. Luna: Alright, that's a good place to leave it. Next episode, we'll dig into something else — maybe the JPMorgan AI story and what it means for algo trading. Lucas: Sounds good. See you then.