🔒Collateral return

Collateral return is a mechanism that affects trading in mutually exclusive market groups.

A hypothetical example of a mutually exclusive market group is “Who will be confirmed as the Secretary of State?” with the markets:

• “Will Hillary Clinton be confirmed as Secretary of State?”

• “Will Rex Tillerson be confirmed as Secretary of State?”

• “Will John Kerry be confirmed as Secretary of State?”

There can only be one confirmed Secretary of State, so there are only four possibilities at settlement: exactly one of the three markets resolves to Yes, or all three markets resolve to No. You buy No in “Hillary Clinton” for 60¢ and No in “John Kerry” for 70¢. You've invested a total of $1.30, but you'd be guaranteed to be paid out $1 by at least one of your positions:

• If Hillary Clinton is confirmed, your John Kerry position will be correct.

• If Rex Tillerson is confirmed, both your positions will be correct.

• If John Kerry is confirmed, your Hillary Clinton position will be correct.

• If none of the three are confirmed, both your positions will be correct.

Therefore, the maximum amount you could lose at settlement is $1.30 - $1 = $0.30. Instead of taking the full $1.30 of your available funds, we take only $0.30 and mark down your position value by the returned $1, leading to an invested value of $0.30. If you hold both contracts until settlement, then you will receive $1 if both your positions were correct (neither Hillary Clinton nor John Kerry is confirmed) and $0 if one of them is.

It’s important to remember that collateral return applies only to trades involving the non-mutually exclusive sides of mutually exclusive multi-market events. In the above examples and in most cases you’ll see on Kalshi, it would apply only when buying and selling No positions.

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