Road Trip: Robinhood's JB Mackenzie Tries to Predict the Future of Prediction Markets

The puns were flying around fast and furious on the final day of the 50th annual International Futures Industry Conference as JB Mackenzie from Robinhood joined the show to discuss the evolution of prediction markets. Prediction markets have made headlines in recent months around events like the presidential election, but as their popularity grows, JB shares his view on just how far prediction markets might push into areas like politics and sports. 

JB also outlines expansion efforts under way at Robinhood and explains why the new generation of investors that has embraced prediction markets and 24/7 trading is likely to drive innovation in other areas of the financial ecosystem.   

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Transcript

(Note: This transcript was created using AI. It has ot been edited verbatim.)

Sean McMahon  0:00  

Hello everyone, and welcome to the Modern Money SmartPod. I'm your host, Sean McMahon, and the road trip for this podcast continues. We're coming to you from the International Futures Industry Conference in Boca, Raton, Florida. Right now I'm joined by one of the legends of this conference. JB Mackenzie, the vice president and general manager of futures and international at Robinhood. JB, how are you doing?

JB Mackenzie  0:30  

I'm still, I'm still breathing here. Sean, I don't know about, I don't know about a legend at all, but no, it is great to be on the podcast. Thanks for having me. It's

Sean McMahon  0:38  

It's great to have you here. Things are just about wrapping up here in Boca. So how did this week treat you? What were some of the highlights?

JB Mackenzie  0:45  

A lack of sleep is one of the things I have learned. No, it's been, it's been a fantastic week. I think coming on the heels of our announcement of offering futures to our clients, getting a chance to actually meet with a variety of different people is a great opportunity, right? It's a chance where everybody comes together and you can together and you can have some conversations. I thought some of the panels were really, really interesting to hear. Always the exchange leaders. It's a it's a good one because it usually has some good pops going back and forth. I heard the best panel was this prediction market one. That's just what I was told. Though, I'm not sure about who was on the panel, but I was told that that was one of the better ones.

Sean McMahon  1:21  

Yeah, there was this guy. Ones. Yeah, there was this guy on that panel. He's wearing pink shoes. 

JB Mackenzie  1:24  

Yeah, what's going on there? Right? I mean, goodness gracious, he's got to know what his age is. He doesn't. He's clearly not aware. He's not a millennial.

Sean McMahon  1:31  

Hey, age is a feeling. It's not a number, JB, but all kidding aside. Yeah, that was the panel you were on I attended. It was fascinating to hear the insights from not only what you guys have going on in production markets, but you know, other players in the industry. So let's just touch base on a couple of topics that you guys discuss. What does the future look like for prediction markets?

JB Mackenzie  1:48  

So I think we are at the beginning of what is going to be an incredibly interesting journey. I said this yesterday when we were talking about it. Is the way the markets are evolving across and people's interest in how they invest is really getting to be, in some cases, shorter in duration, but they want it to be very in some cases, fragmentized, like what we've seen at Robin Hood is the growth of fractional shares. Because why? Why do people want to trade? They want to pick the size of the of the stock they want. They may not have enough money for it. They may want to slowly dabble with a stock and learn more about how it behaves, see how the company performs, that kind of stuff. And so for me, with the prediction markets, this is sort of the first entry point where that where people can actually have a similar control on the derivative side. So we always talk about, like, what did it do for us? And I think I used the numbers where we were up there, like when we decided to launch the presidential election contracts, those event contracts, in about a week, we opened up 800,000 accounts and did over 600 million contracts traded. And that was a week. So if there was ever like a passion, you could see people are very interested, because they saw that event as being critical in some component of either their personal or investment journey, and how could have an impact on their on their pocketbooks. And so they wanted to participate in those markets. 

Sean McMahon  3:04  

It sounds like you got to have a presidential election every week. 

JB Mackenzie  3:06  

I wish I could. I'm good as gracious, right? It's crazy when you see that. 

Sean McMahon  3:10  

Yeah, but the election was something that sparked a thought in my mind. So prediction markets, you know, some of them, are inching closer and closer to what we all kind of maybe view as like a sports book. What we're familiar with, are we ever going to get to a point where not only are you gonna be able to take position on who's gonna win, say, a presidential election, but is there gonna be a spread, like, by how many electoral votes are, how many millions of popular vote like, things like that? 

JB Mackenzie  3:31  

I mean, I think it's gonna depend on what the market wants. And what I mean by that are investors, and it's beyond just retail. I know we were talking about this, like, Who do we think's gonna think is going to go into these markets while retail is at the front forefront of this market right now? It's not going to be the only participant in there. We've already seen smaller institutions, hedge funds, LPs. There's an opportunity for them all to come together. And to me, what makes a successful market is having basically all those participants together. And I think that's what's going to actually drive the product creation and innovation along the way. I mean, I know a lot of people get focused in on, let the elections and or possibly the sports side, the most popular traded products that I've been looking at all the various exchanges that they're they're actually price volatility on a specific product like crypto. So where people actually have an opinion, and they're saying, Hey, I think that Bitcoin may go up or may go down, but decide they don't want to buy an ETF, they don't want to buy a stock of a miner, they don't want to buy the actual spot. They're like, I just have an opinion that I think is gonna go up or go down. It's another interesting way for them to have this. So I do think that that foundational piece is kind of what keeps evolving, keeps building from there, but that was never like in the idea of what we thought was should be a prediction market, and I think that's where it kind of keeps developing. So that's why, when I say to you, hey, I don't know it, what's it's what the market's going to want, I think the market is going to decide the direction to which prediction markets continue to evolve, and then it'll end up being, you know, client, demand, liquidity, as the. Drivers of those two pieces to make them successful products.

Sean McMahon  5:02  

So what other mechanisms can you put in place to just kind of prevent manipulation? Because a lot of times, you know, bringing it back to the sports for a second there, like, you know, some of these things that could be pretty easy manipulated. Or, as we've seen, you know, sports scandals left and right. So if it's something like a is there going to be like an under over for how long a certain Cabinet Secretary serves? Well, that's cabinet secretary can manipulate that outcome. So what kind of, I don't want to say oversight, like a regulator coming in to do that, but are the market participants going to kind of sort out what's the safe offering to have and what's not? 

JB Mackenzie  5:35  

Yeah, I think, I think it's two parts too. I do think the beauty of, I would argue, our futures markets, and even I would say financial markets overall, is there are so many checks and balances as you look into the marketplace to keep an eye on any type of manipulation in the market. So whether that's an outright future, an option, FX, equities, etc, there's enough, I think, different ways of surveillance and views, and we keep an eye on all that for any asset class. So I think, I think the structure is there, which is interesting. I think the other part to it, which is going to be, is people have an opinion, and when they, when they come into the markets, they decide what is going to work or not. And we were talking about this, I said CME Group, for example, offers 1000s of different futures products. We offer 25 it's not because those other products aren't, aren't good or don't have utility. It's because our clients don't have that demand for it. So I think the market will define a bit of where it is. And I think sometimes we will look at it as an FCM and say, Hey, we've got a whole entire product review committee structure that we go and look through. So we will want to make sure that the products we're offering have utility to the end customer. And I think that will help kind of dictate where it goes. But I think, to your point, that's also why I think people are a little bit nervous. This is a new product. They're kind of concerned, where is it going to go. They saw sort of what happened with crypto. Crypto went from being, I would argue, in the same state of mind as these prediction markets, to now it's mainstream, but it took a while to build some of the muscle memory and the capabilities and show people that we can actually go and have and develop innovative products with good controls in it. But I think of all places I would do it, it's in the futures markets. I think we have the best oversight, we have the best controls. We've got great leadership that's looking to develop interesting products. I think that all comes together. It kind of it's a perfect time for these prediction markets to start to develop.

Sean McMahon  7:17  

So speaking of the development of these markets, where are we going to be in, say, 12 to 18 months when it comes to prediction markets, what are we going to be talking about? 

JB Mackenzie  7:25  

You know, I wish I could predict that. That would tell me something. No pun intended. I was trying not to do the puns, and I got caught in it. No, you know, I think, I think we're so early that people are kind of trying to understand where and how these fit. So I kind of tell everybody. The way I look at these prediction markets is you sort of have this sort of underlying foundational set of economic numbers, and I think price volatility falls into that that are basically core products that are going to just start to develop and be expanded out to new, new investors. It's a way for you to teach someone, why is it important to know what the inflation number was today and how it has an impact on the market, but it's a small enough increment where they can start to just sort of dip their toe in and get an understanding to it. I think beyond that, what you start to see are these sort of higher flying, kind of emotional, type of interesting things, and those get into a little bit of, you know, politics, sports and I think, pop culture, so like the Oscars, yeah. I mean, I think, I think there's people out there now, whether I like it or I don't like it, or whether you have interest or not, for whatever reason, there's enough in there, but what I find is, is that at least those products have little blips of interest, meaning there's some specific item that comes to the forefront. Maybe it's the Oscars, you know, maybe it's a bill or a policy that's coming up for voting Congress. I think those spark an interest where people then become very intrigued about the impact of it, and they jump into that market. But at the end of the day, you're sort of foundational products, those financial ones, they come every month, every quarter, they have utility in helping designers. So I think when you say to me, what I see happening in the next 12 to 18 months. I think these products will become much more embedded into our financial ecosystem. But I think what you'll see is you'll still be talking about these ones that are kind of high flyers that come and go. But what will be really interesting is to watch how a new way of investors now can access financial markets and build their education. I mean, look, we have, you know, at Robin, we've almost 26 million customers that have been coming through the door. Most of them are new to brokerage, never traded before. So we want to educate them on how it's important. So I do think giving them this product, teaching them how this could help them build their financial future and take them to the next step, is going to be critical.

Sean McMahon  9:38  

Yeah, so real quick, I want to shift away from the prediction markets. Just talk about more. What you guys have going on Robin Hood. I think when we got here the last year here in Boca, you were just about to launch in the UK. If we got that right, seems like you guys are growing. Things are going well, what's, what's, what's the latest and what's coming next?

JB Mackenzie  9:55  

I mean, it's been, it's been a heck of a 12 months. You know, I've been here for two. Years, and it's been a heck of a 12 month run for us. I think a couple of things that happened so we did. We had just opened our UK entity, that was our first international Robin Hood entity, which was fantastic. And we're like, Hey, that's not good enough. So then we actually pulled all of our US capability. So we just launched options trading there in the UK, which has been a really interesting opportunity, because that was the big question. People said is, well, do British investors interested in accessing options answers? Yeah. I mean, we did an event there, and that was the first thing people kept asking me, like, well, what comes next? And that's what they're dying for. The exact same investment capabilities that we have in the US internationally. So that's been exciting. So we got that off the door that's on there. We actually opened up an entity in Europe for Robin Hood crypto, my colleague Johan bot has done an amazing job of kind of building that infrastructure out and starting to build that into Europe. And we're looking to see where that may or may not be able to be an opportunity for us. On the broker side, we announced our looking to enter into the Singapore marketplace. We think that that was a really good opportunity for us, and we're just waiting and pending our mas review, so hopefully that we can then look to offer Robin Hood there. And then on top of it, we just decided it was time for us to go build out and go after that active trader. And the teams created a net new trading platform called Legend. And it was really cool because it actually took a lot of the skills that Robin Hood has put together, which is intuitive, elegant trading platforms on your mobile phone and made a desktop and made it easier for customers to go between the two, almost seamless. So they can look at charting, they can do different types of trading on it, but they can also use their mobile device to check stuff as news is coming through, and still be able to access it just seamlessly. 

Sean McMahon  11:35  

One of the hottest topics here was all the geopolitical stuff, the tensions, tariffs, what kind of volumes are you guys? You guys seen the spikes with these same announcements or tracking where everyone else is 100%

JB Mackenzie  11:46  

I think, I think what you're seeing is you had this sort of run post election, of everything sort of just kind of elevating up. And then with a lot of the geopolitical coming into the mix, the questions on tariff stuff, now you're starting to see volatility returning back into the marketplace. And I think what's interesting has been is the volumes are just dramatically increasing across the board, because people are looking at both as an opportunity, but also a hedge of their portfolios. And so being able to offer like we just thought, we just launched index options, another opportunity, broad based. When people see a lot of volatility, many of them go away from single names and they go across to more of the indices. That's the advantage of also offering futures and having like the NASDAQ and the S P is it gives you two sides of that market, so that if things are going up, you can kind of hedge into it, but you can also do a little speculation along the way. As I said on the panel yesterday, speculation is not a bad thing. Speculation is how much like nobody ever said, Hey, I was hoping to, I wanted to buy Apple, and I hope it went down after I bought it, right? Your speculation is it's going to go up, and I think you're seeing retail investors smartly jump in and out of the marketplace as the market pulls back. But I just think it's just having the ability to have this mobile device and trade on it, and the fact that you now have 24/7 markets, almost, I know most of 24 five, but 24/7 just everyone's on there looking at an opportunity, and they're seizing upon it.

Sean McMahon  13:01  

Well, I've been asking this question of of a few of the guests this week, and I'm going to lean into the pun here, all right, and I'm going to ask you to predict what we're going to be talking about at next year's Boca.

JB Mackenzie  13:10  

Ooh. It's interesting because, you know, I actually think it's going to I think what's going to be the main conversation piece next year is going to be a combination of 24/7 clearing and the evolution of these predictive markets. I really, really, truly do, because I think we've already started talking about the power of retail and its influx. But what I was trying to tell people that I've seen is that when I grew up a long, long time ago, as my, as my, as my kids refer to it and the stone ages, which is, I mean, I don't feel quite that old, as you said, it's just a number, but we started trading by learning to buy an equity. Maybe you learned to do an option, you did a futures trading, FX trade, and then maybe did crypto that sort of completely evolved and changed with these investors. I think what you're seeing now is new investors are crypto first. What are they used to? 24 hours a day, seven days a week. Now they're coming into different types of risk to find risk spreads and trades and options and stuff. And so I think, more than anything else, that's going to be, I think the trend that's coming down here, because people are now just starting to talk about it, but you have people saying, what do we do? We need to be able to access these markets. And I think the globalization will force that as well. So you're seeing, you know, it's, you know, our day cycle is night cycle in other parts of the world, but they want to access markets. And we're seeing that 24/7 come in. So I think 24/7 is going to be the real big conversation. And if we can get there, that's the big thing.

Sean McMahon  14:36  

Well, I look forward to connecting with you next year, and we'll see where that stands. And as for this week, it's almost over. You can almost catch your breath, and I appreciate you taking the time to stop by the show. 

JB Mackenzie  14:48  

No, I appreciate you guys having mine. It's always fantastic to do it. I think next time you should actually do it from Palm court, and then see what happens along the way. You may get a much different responses from some people. Throughout the evening,

Sean McMahon  15:00  

Depending on what point what time of night, right? You said 24/7 markets. I'll do it about 2am and see what I get 

JB Mackenzie 

Exactly. 

Sean McMahon

Well, listen. JB, hey, great to talk to you at Safe travels, my friend. 

JB Mackenzie 

Thanks a lot. Appreciate. 

Sean McMahon

Well, that's our show for today. But before I get out of here, one last reminder, be sure to watch for more episodes of this podcast as we bring you all the news and headlines from the 50th annual International Futures Industry Conference in Boca