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 be trading prediction markets as a US resident — or thinking about entering the space — grasping the CFTC's role in prediction markets is absolutely essential. This regulatory body dictates which contracts remain legal, which venues can host them, and what compliance obligations apply.
What is the CFTC?
The Commodity Futures Trading Commission serves as the federal regulator overseeing commodity derivatives, options contracts, and swap agreements across the United States. Because prediction market instruments behave like binary options structures, they come under CFTC authority whenever they 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 unauthorised event contract exchange. The settlement's principal components were:
- $1.4M financial penalty imposed by the regulator
- Commitment to discontinue markets that failed to meet regulatory standards
- Implementation of geographic restrictions preventing US-based users from accessing the platform directly
Following this resolution, Polymarket has redirected efforts toward international expansion whilst investigating potential compliance pathways for the American market.
Kalshi vs. CFTC (2023-2024)
Kalshi, which holds DCM registration with the CFTC, initiated litigation challenging the agency's refusal to permit its election-linked contracts. This pivotal ruling determined that the CFTC lacks authority to categorically prohibit event contracts merely because they relate to political processes — a significant victory for the sector. The DC Circuit's decision broadened possibilities for event contract expansion.
Nadex and Other Platforms
Nadex (North American Derivatives Exchange) has operated CFTC-regulated binary options for an extended period, encompassing certain event-based offerings. This operational framework illustrates that lawful prediction markets remain achievable within the current American regulatory framework.
What Makes a Prediction Market Legal in the US?
For a platform to legitimately provide prediction market contracts to American customers, it must satisfy these requirements:
- Secure DCM status through formal CFTC registration
- Satisfy Core Principles — a set of 23 standards addressing market monitoring, financial safeguards, and trader protections
- Receive contract clearance — all new event contract categories require CFTC submission and non-objection
- Deploy KYC/AML measures — customer identification and financial crime prevention systems
The "Gaming" Exception
The Commodity Exchange Act (CEA) restricts event contracts classified as "gaming" — a definition the CFTC construes expansively. Consequently, sports-linked prediction markets remain legally uncertain. Historically, the CFTC has treated sports event contracts as gaming activities, although Kalshi's judicial success has complicated this interpretation.
What Happens if You Trade on Unregistered Platforms?
Individual traders encounter limited direct consequences — the CFTC pursues platform operators rather than retail participants. Nevertheless, using unregistered platforms introduces these risks:
- CFTC safeguards for customer assets do not apply to your holdings
- Your funds lack the legal requirement of segregated holding accounts
- The CFTC cannot intervene if the platform becomes insolvent or engages in misconduct
For comprehensive information on international regulatory frameworks, consult our 2026 global regulation guide. Interested in trading through a properly regulated venue? Discover PolyGram's platform. Start trading on PolyGram →