In this guide
Key takeaway: The CFTC has become the de facto US regulator for prediction markets since 2022. Platforms must register as Designated Contract Markets (DCMs) or face enforcement. Kalshi is the only fully compliant platform; Polymarket settled and geo-blocks US users.
Should you engage in prediction market trading from within the United States — or contemplate doing so — grasping the CFTC's role in prediction markets remains absolutely essential. This regulatory body dictates which contracts remain lawful to trade, which venues permit such activity, and the compliance requirements attached to each transaction.
What is the CFTC?
The Commodity Futures Trading Commission serves as the primary federal regulator overseeing derivatives, commodity options, and swap agreements across US markets. Because prediction market instruments behave much like binary option contracts, the CFTC asserts regulatory authority whenever such instruments are made available to American participants.
Key CFTC Enforcement Actions
Polymarket (January 2022)
Polymarket reached a settlement with the CFTC for $1.4 million following its operation of an unregistered event contract exchange. The settlement's principal components comprised:
- $1.4M civil monetary penalty
- Agreement to wind down non-compliant markets
- Geo-blocking US users from direct platform access
Following this resolution, Polymarket has concentrated efforts on markets outside the US whilst investigating potential routes toward regulatory alignment.
Kalshi vs. CFTC (2023-2024)
Kalshi, operating as a CFTC-registered DCM, initiated litigation against the CFTC when the regulator declined to authorise its political control contracts. This pivotal legal decision clarified that the CFTC lacks authority to impose categorical restrictions on event contracts merely because electoral outcomes feature prominently — representing a significant advancement for market participants. The DC Circuit's determination subsequently expanded opportunities for event contract expansion across compliant venues.
Nadex and Other Platforms
Nadex (North American Derivatives Exchange) continues providing CFTC-regulated binary option instruments, encompassing certain event-driven contracts. Their operational framework illustrates that regulated prediction markets remain achievable within the current American regulatory framework.
What Makes a Prediction Market Legal in the US?
Platforms seeking to lawfully furnish prediction market instruments to American participants must accomplish the following:
- Register as a DCM with the CFTC
- Comply with Core Principles — 23 requirements covering market surveillance, financial integrity, and customer protection
- Obtain contract approval — each new event contract type must be submitted and not objected to by the CFTC
- Implement KYC/AML — know-your-customer and anti-money-laundering protocols
The "Gaming" Exception
The Commodity Exchange Act (CEA) restricts event contracts encompassing "gaming" — language the CFTC construes expansively. Consequently, sports-oriented prediction markets remain contentious. Historically, the CFTC has maintained that sports event contracts constitute gaming activity, though Kalshi's judicial success has muddied this distinction considerably.
What Happens if You Trade on Unregistered Platforms?
Individual traders encounter minimal direct enforcement exposure — the CFTC pursues platforms rather than participants. Nevertheless, participation on unregistered venues carries substantial risks:
- No CFTC customer protection rules apply to your funds
- No segregated account requirements for your deposits
- No CFTC recourse if the platform fails or acts fraudulently
For comprehensive insight into worldwide regulatory frameworks, consult our 2026 global regulation guide. Prepared to participate on a venue featuring appropriate safeguards? Learn how PolyGram works. Start trading on PolyGram →