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 with prediction markets as a US-based trader — or are you exploring the possibility — grasping the CFTC's role in prediction markets is essential. This regulatory body dictates which contracts remain tradeable, which venues permit such trading, and what compliance obligations apply.
What is the CFTC?
The Commodity Futures Trading Commission serves as the primary federal regulator overseeing commodity futures, options, and swaps. Prediction market contracts operate much like binary options and therefore fall within CFTC authority when made available to individuals in the United States.
Key CFTC Enforcement Actions
Polymarket (January 2022)
Polymarket reached a settlement with the CFTC valued at $1.4 million for running an unregistered event contract marketplace. The settlement's principal components were:
- $1.4M financial penalty imposed by the CFTC
- Commitment to discontinue non-compliant contract offerings
- Implementation of geographic restrictions preventing US-based users from accessing the platform directly
Following this settlement, Polymarket has concentrated efforts on markets outside the United States whilst investigating potential compliance pathways for US operations.
Kalshi vs. CFTC (2023-2024)
Kalshi, holding CFTC-registered DCM status, initiated litigation against the CFTC when the regulator denied approval for its congressional control contracts. This pivotal ruling determined that the CFTC lacks authority to impose categorical prohibitions on event contracts merely due to their connection with electoral processes — representing a significant victory for market participants. The DC Circuit's decision broadened possibilities for expanded event contract availability.
Nadex and Other Platforms
Nadex (North American Derivatives Exchange) has long provided CFTC-regulated binary options, encompassing certain event-based offerings. This operational model illustrates that compliant prediction markets remain achievable within the existing American regulatory framework.
What Makes a Prediction Market Legal in the US?
Operating prediction market contracts lawfully for American participants requires that a platform:
- Obtain DCM registration through the CFTC
- Satisfy Core Principles — encompassing 23 standards addressing trade monitoring, fiscal soundness, and investor safeguards
- Secure contract authorisation — submitting each proposed contract variety for CFTC review and obtaining non-objection
- Deploy KYC/AML safeguards — establishing customer identification and financial crime prevention measures
The "Gaming" Exception
Under the Commodity Exchange Act (CEA), event contracts tied to "gaming" remain prohibited — a definition the CFTC applies expansively. This restriction explains why sports-focused prediction markets remain legally contentious. Historically, the CFTC has contended that sports-related contracts qualify as gaming, though Kalshi's judicial success has complicated this interpretation.
What Happens if You Trade on Unregistered Platforms?
Direct consequences for individual traders remain limited — the CFTC pursues enforcement against venues rather than participants. Nevertheless, using unregistered venues introduces significant risks:
- CFTC protections governing customer assets do not extend to your holdings
- Absence of mandatory account segregation for deposited capital
- Inability to seek CFTC remedies should the platform collapse or engage in misconduct
For comprehensive insight into worldwide regulatory frameworks, consult our 2026 global regulation guide. Prepared to participate on a venue offering appropriate safeguards? Discover PolyGram's functionality. Start trading on PolyGram →