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 within the United States — or thinking about entering this space — grasping the CFTC's role in prediction markets is absolutely essential. This regulatory body dictates which contracts remain tradeable, which venues permit such trading, and the specific rules governing each transaction.
What is the CFTC?
The Commodity Futures Trading Commission serves as the principal US federal regulator overseeing commodity futures, options, and swaps. Given that prediction market instruments operate much like binary options contracts, the CFTC claims regulatory authority whenever such offerings reach 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 unregistered event contract exchange. The settlement's principal provisions encompassed:
- $1.4M civil monetary penalty
- Agreement to wind down non-compliant markets
- Geo-blocking US users from direct platform access
Following this settlement, Polymarket has concentrated efforts on markets outside the United States whilst pursuing potential compliance mechanisms for American operations.
Kalshi vs. CFTC (2023-2024)
Kalshi, operating as a CFTC-registered DCM, initiated litigation against the CFTC when the regulator declined to approve its congressional control contracts. This pivotal ruling determined that the CFTC lacks authority to impose categorical prohibitions on event contracts merely because they reference electoral outcomes — representing a significant victory for market participants. The DC Circuit Court's decision unlocked possibilities for expanded event contract categories.
Nadex and Other Platforms
Nadex (North American Derivatives Exchange) has operated CFTC-regulated binary options for an extended period, encompassing certain event-driven contracts. Their operational framework illustrates that compliant prediction markets remain achievable within the current American regulatory environment.
What Makes a Prediction Market Legal in the US?
Operating prediction market contracts lawfully for American participants demands that an exchange:
- 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
The Commodity Exchange Act (CEA) restricts event contracts involving "gaming" — language the CFTC construes expansively. Consequently, sports-focused prediction markets remain contentious. Historically, the CFTC has contended that sports event contracts qualify as gaming, although Kalshi's judicial success has complicated this interpretation.
What Happens if You Trade on Unregistered Platforms?
Individual traders encounter minimal direct regulatory exposure — the CFTC pursues platforms rather than end-users. Nevertheless, participation on unregistered exchanges carries substantial risks:
- 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 →