In this guide
Key takeaway: Since 2022, the CFTC has emerged as the principal US regulatory body overseeing prediction markets. Platforms seeking to operate legally must obtain Designated Contract Market status or face regulatory action. Kalshi stands as the sole fully-registered compliant operator; Polymarket reached a settlement and restricts access from US-based participants.
Should you engage with prediction markets from within the United States — or plan to do so — grasping the CFTC's authority over prediction markets is absolutely essential. This regulator establishes which contracts remain lawful to trade, which venues may offer them, and what operational standards must be met.
What is the CFTC?
The Commodity Futures Trading Commission represents the principal US governmental authority responsible for supervising commodity futures, options, and derivatives markets. Given that prediction market instruments behave analogously to binary options contracts, they come under CFTC purview whenever made available to American participants.
Key CFTC Enforcement Actions
Polymarket (January 2022)
Polymarket concluded a settlement with the CFTC for $1.4 million following its operation of an unlicensed event contract marketplace. The settlement's principal provisions encompassed:
- $1.4M financial penalty imposed by the regulator
- Commitment to discontinue non-compliant contract offerings
- Implementation of geographic restrictions preventing US participant entry
Following this resolution, Polymarket has redirected efforts toward international expansion whilst investigating potential avenues for future US regulatory approval.
Kalshi vs. CFTC (2023-2024)
Kalshi, holding DCM registration status with the CFTC, initiated legal proceedings against the regulator after its application for election-related contracts faced rejection. This significant judicial determination affirmed that the CFTC lacks authority to impose categorical prohibitions on event contracts merely because they reference political contests — representing a substantial victory for market participants. The appellate court's decision subsequently expanded possibilities for additional event-based contract categories.
Nadex and Other Platforms
Nadex, operating as the North American Derivatives Exchange, has furnished CFTC-supervised binary options contracts for an extended period, encompassing certain event-contingent offerings. This operational framework illustrates that lawful prediction market services can function within the current US regulatory environment.
What Makes a Prediction Market Legal in the US?
Platforms wishing to lawfully furnish prediction market instruments to American residents must satisfy these prerequisites:
- Secure DCM designation through formal CFTC application
- Satisfy Core Principles — encompassing 23 operational mandates addressing market monitoring, financial safeguards, and participant protections
- Receive contract authorisation — submitting individual contract specifications for regulatory review and approval
- Deploy KYC/AML frameworks — establishing customer identification and financial crime prevention mechanisms
The "Gaming" Exception
The Commodity Exchange Act contains restrictions on event contracts classified as "gaming" — terminology the CFTC construes expansively. Consequently, sports-based prediction markets remain contentious territory. Historically, the CFTC has taken the position that sports event contracts qualify as gaming, though Kalshi's recent judicial success has muddied these distinctions.
What Happens if You Trade on Unregistered Platforms?
Retail participants encounter limited direct enforcement exposure — the CFTC concentrates its efforts on platform operators rather than individual traders. Nevertheless, participation in unregistered venues introduces substantial hazards:
- CFTC protections governing customer assets do not extend to your holdings
- Mandatory segregation safeguards for participant funds remain absent
- CFTC remedies prove unavailable should the operator become insolvent or engage in misconduct
To explore how different platforms navigate these requirements, consult our comparison of leading prediction market operators. For comprehensive international regulatory context, review our 2026 global regulation guide. Prepared to engage with a properly-regulated venue? Discover PolyGram's compliance framework. Start trading on PolyGram →