CFTC and Prediction Markets: The Regulatory Landscape

Key takeaway: Since 2022, the CFTC has served as the primary regulatory authority overseeing prediction markets in the United States. Platforms seeking to operate legally must obtain registration as Designated Contract Markets (DCMs) or face regulatory penalties. Kalshi stands as the sole platform operating in full compliance; Polymarket completed a settlement agreement and restricts access for users based in the US.

Should you engage in prediction market trading from within the United States — or plan to do so — grasping the CFTC's oversight of prediction markets represents an essential requirement. This regulatory body establishes which contracts remain permissible for trading, which venues can offer them, and what compliance obligations apply.

What is the CFTC?

The Commodity Futures Trading Commission operates as the federal agency tasked with supervising commodity futures, options, and derivatives transactions across US markets. Because prediction market contracts exhibit characteristics comparable to binary options instruments, they come under CFTC authority whenever made available to American participants.

Key CFTC Enforcement Actions

Polymarket (January 2022)

Polymarket reached a settlement with the CFTC for $1,4 million upon discovery that it had been running an improperly registered event contract marketplace. The settlement's principal provisions encompassed:

$1,4 Mio. financial penalty imposed by the regulator
Commitment to discontinue markets that failed to meet regulatory standards
Implementation of geographic restrictions preventing US-based participants from accessing the platform directly

Following this settlement, Polymarket has concentrated efforts on serving international markets while investigating potential compliance mechanisms for US operations.

Kalshi vs. CFTC (2023-2024)

Kalshi, operating as a CFTC-registered DCM, initiated litigation against the CFTC after the regulator denied approval for its contracts tied to congressional activities. This significant judicial decision confirmed that the CFTC lacks authority to impose sweeping prohibitions on event contracts merely because they reference political processes — representing a substantial victory for market participants. The DC Circuit's decision paved the way for expanded offerings of event-based contracts.

Nadex and Other Platforms

Nadex (North American Derivatives Exchange) has provided CFTC-supervised binary options contracts over an extended period, encompassing certain event-driven instruments. This operational framework illustrates that compliant prediction markets can function within the existing US regulatory structure.

What Makes a Prediction Market Legal in the US?

To lawfully provide prediction market contracts to American participants, an exchange operator must:

Secure DCM status through submission and approval by the CFTC
Meet Core Principles requirements — encompassing 23 distinct standards addressing trade monitoring, fiscal safeguards, and investor safeguards
Receive contract authorization — submitting each proposed event contract for regulatory review and obtaining CFTC non-objection
Deploy identity verification and financial crime prevention measures — establishing customer identification and sanctions compliance frameworks

The "Gaming" Exception

Under the Commodity Exchange Act (CEA), event contracts touching upon "gaming" face prohibition — a concept the CFTC construes expansively. Consequently, prediction markets centered on athletic competitions remain legally uncertain. Historically, the CFTC has maintained that athletic event contracts constitute gaming activities, though Kalshi's judicial success has introduced ambiguity into this interpretation.

What Happens if You Trade on Unregistered Platforms?

Individual participants encounter limited personal legal exposure — the CFTC directs enforcement toward operators rather than retail customers. Nevertheless, participation on unregistered venues entails:

Absence of CFTC-mandated safeguards protecting your capital
Lack of segregation requirements for customer deposits held by the operator
Inability to petition the CFTC for assistance if the venue becomes insolvent or engages in misconduct

For comprehensive information regarding international regulatory frameworks, consult our 2026 global regulation guide. Seeking to participate on a venue with established safeguards? Discover PolyGram's operational structure. Start trading on PolyGram →