Trading on prediction markets from Canada? Mind the fees

Canadians trading on prediction markets often face higher fees than investors making the same bets directly on U.S. exchanges, with trading charges and currency conversion costs cutting into potential returns.

Prediction markets allow investors to trade contracts tied to the outcomes of real-world events, such as economic developments or financial market movements. Contracts typically cost between one cent and 99 cents and pay out $1 if the predicted outcome occurs, or nothing if it doesn’t.

Canadian platforms charge one or two US cents per contract, fees that can add up quickly for investors and can be more than three times as high as those paid by U.S. investors. In addition, Canadians may also face currency conversion costs, as the contracts are traded only in U.S. dollars.

These high transaction costs make it harder for Canadian investors to come out ahead when trading event contracts, which are widely regarded as risky financial products because of their all-or-nothing payoff structure.

“You’re now paying a per-contract fee and a currency exchange fee. It starts to add up quickly and aggressively,” said Benjamin Felix, chief investment officer and portfolio manager at PWL Capital. “The odds are really stacked against you, net of fees and costs.”

The Canadian Investment Regulatory Organization, or CIRO, permits authorized investment dealers to offer a limited selection of event contracts traded and cleared through certain U.S. Commodity Futures Trading Commission-regulated exchanges and clearing houses. Currently, only Wealthsimple and Interactive Brokers Canada are permitted by CIRO to offer those contracts.

Wealthsimple gives Canadian clients access to a subset of contracts listed on Kalshi, a popular U.S. prediction market exchange, through its stand-alone app, Wealthsimple Predict. Interactive Brokers Canada offers contracts traded on both Kalshi and its own exchange, ForecastEx.

The fees Canadians pay to access these markets are structured differently from those charged to investors buying contracts directly on the U.S. exchanges.

On Wealthsimple Predict, investors pay a fixed, upfront trading fee of two US cents for each contract they buy. For example, a contract priced at 42 US cents would cost 44 US cents, including the fee. If the prediction is correct, the contract pays out US$1. If it is wrong, the investor loses the full amount paid.

Interactive Brokers Canada charges two US cents per contract for trades on Kalshi and 1 US cent per contract for ForecastEx contracts.

By contrast, U.S.-based investors trading directly on Kalshi pay fees that vary based on the price of the contract and the number of contracts they purchase, rather than a flat, per-contract amount.

Under Kalshi’s fee schedule, for example, buying 100 contracts priced at $0.01 each would cost 63 US cents in trading fees. By comparison, a Canadian investor purchasing the same contracts through Wealthsimple Predict would pay US$2 in trading fees, more than three times as much.

The difference narrows for contracts priced closer to 50 US cents. Buying 100 contracts at that price would cost US$1.75 in fees directly through Kalshi, compared with US$2 through Wealthsimple Predict.

Fixed trading fees can have a particularly significant impact on lower-priced contracts because they represent a larger share of the initial investment. For example, Wealthsimple’s two-US-cent fee is equivalent to 20 per cent of the price of a contract costing 10 US cents. For a contract priced at 50 US cents, the same fee represents just 4 per cent.

“For a low-price contract, the percentage fees can get pretty significant pretty quickly,” Mr. Felix said.

Then there’s the possible added cost of foreign-exchange costs. Because prediction market contracts offered through Wealthsimple Predict and Interactive Brokers Canada are traded on U.S. exchanges, they are denominated in U.S. dollars.

At Wealthsimple, clients who need to convert Canadian dollars into U.S. dollars typically pay the company’s standard foreign exchange fee of 1.5 per cent, calculated using a live exchange rate that includes a spread that may vary depending on market conditions, the company said. (The spread is the difference between the price at which a currency is bought and the price at which it is sold.)

However, clients who already hold U.S. dollars in a Wealthsimple account can transfer them to Wealthsimple Predict if they don’t want to pay the foreign exchange rate, the company said.

At Interactive Brokers Canada, currency conversion fees start at 0.002 per cent of the amount converted, with no additional spreads or markups. The brokerage uses real-time foreign exchange rates, the company said. However, a minimum US$2 commission means costs are higher for smaller trades.

Canadians purchasing U.S.-listed stocks and other investments may also face conversion charges. However, unlike with other types of securities, there is currently no option for Canadians to buy event contracts in Canadians dollars.