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-based participant — or thinking about entering this space — grasping the CFTC's role in prediction markets is absolutely essential. This regulatory body sets the boundaries around which contracts are permissible, which venues can offer them, and what operational standards apply.
What is the CFTC?
The Commodity Futures Trading Commission serves as the primary US federal regulator overseeing commodity futures, options, and swaps. Given that prediction market contracts operate much like binary options instruments, they come within CFTC authority whenever they are made available to American persons.
Key CFTC Enforcement Actions
Polymarket (January 2022)
Polymarket reached a settlement with the CFTC for $1.4 million due to running an unregistered event contract exchange. The settlement's principal components were:
- $1.4M financial penalty imposed by the regulator
- 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 international expansion whilst investigating potential compliance pathways within the United States.
Kalshi vs. CFTC (2023-2024)
Kalshi, which holds CFTC registration as a DCM, initiated legal proceedings against the CFTC when the regulator declined to authorise its political outcome contracts. This significant legal decision clarified that the CFTC lacks authority to impose blanket prohibitions on event contracts merely because they relate to electoral processes — a substantial victory for market participants. The DC Circuit's judgement created opportunities for expanded event contract availability.
Nadex and Other Platforms
Nadex (North American Derivatives Exchange) has provided CFTC-supervised binary options for an extended period, encompassing certain event-based offerings. This operational structure illustrates that compliant prediction markets remain achievable within the current US regulatory framework.
What Makes a Prediction Market Legal in the US?
For a platform to lawfully provide prediction market contracts to American participants, it must:
- Obtain DCM registration with the CFTC
- Meet Core Principles — 23 obligations encompassing trade monitoring, financial soundness, and user safeguards
- Secure contract authorisation — every distinct event contract must undergo CFTC review and receive non-objection status
- Deploy KYC/AML systems — customer identification and financial crime prevention measures
The "Gaming" Exception
The Commodity Exchange Act (CEA) restricts event contracts that involve "gaming" — language that the CFTC interprets expansively. This restriction explains why wagering-based prediction markets remain contentious. Historically, the CFTC has contended that sports-linked event contracts qualify as gaming, though Kalshi's recent judicial success has muddied this distinction.
What Happens if You Trade on Unregistered Platforms?
Individual traders encounter minimal direct enforcement risk — the CFTC pursues platforms rather than individual users. Nevertheless, participation on unregistered venues carries significant drawbacks:
- CFTC safeguards for customer assets do not extend to your holdings
- Your deposits lack the protection of segregated account requirements
- You have no CFTC remedy if the venue 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 features and how to get started. Start trading on PolyGram →