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 resident — or are you evaluating whether to do so — grasping the CFTC's regulatory authority over prediction markets is essential. This body establishes the boundaries of lawful trading activity, determines which venues are permissible, and sets the operational requirements platforms must satisfy.
What is the CFTC?
The Commodity Futures Trading Commission serves as the primary federal regulator overseeing commodity futures, options, and swaps throughout the United States. Because prediction market contracts behave much like binary options instruments, they come within CFTC purview whenever they are made available to American participants.
Key CFTC Enforcement Actions
Polymarket (January 2022)
Polymarket reached a settlement agreement with the CFTC in the amount of $1.4 million for having operated an event contract platform without proper registration. The settlement's principal components were:
- $1.4M civil monetary penalty
- Agreement to wind down non-compliant markets
- Geo-blocking US users from direct platform access
Following this enforcement action, Polymarket has redirected its efforts toward markets outside the United States whilst investigating potential compliance pathways for American operations.
Kalshi vs. CFTC (2023-2024)
Kalshi, holding CFTC registration as a DCM, initiated legal proceedings against the CFTC when the regulator declined to authorise its congressional control contracts. This pivotal ruling determined that the CFTC lacks authority to impose a blanket prohibition on event contracts merely because they reference electoral outcomes — a significant development for market participants. The DC Circuit's decision expanded possibilities for offering a wider range of event-based contracts.
Nadex and Other Platforms
Nadex (North American Derivatives Exchange) has operated CFTC-regulated binary options for an extended period, including certain event-related contracts. Their operational framework illustrates that compliant prediction markets remain achievable within the current American regulatory structure.
What Makes a Prediction Market Legal in the US?
For a platform to lawfully make prediction market contracts available to US participants, it must:
- 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
Under the Commodity Exchange Act (CEA), event contracts tied to "gaming" activities are prohibited — a definition the CFTC construes expansively. Consequently, prediction markets centred on sports outcomes remain contentious. Historically, the CFTC has maintained that sports event contracts qualify as gaming, though Kalshi's judicial success has introduced ambiguity into this classification.
What Happens if You Trade on Unregistered Platforms?
Retail traders themselves encounter limited direct liability — the CFTC pursues enforcement against platforms rather than individual customers. Nonetheless, participation on unregistered venues carries material drawbacks:
- 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 a broader look at global rules, see our 2026 global regulation guide. Ready to trade on a platform with proper risk controls? Learn how PolyGram works. Start trading on PolyGram →