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 US jurisdiction — or thinking about doing so — grasping the CFTC's regulatory authority over prediction markets is essential. This regulator sets the boundaries for what contracts you may access, which venues permit them, and what operational safeguards apply.
What is the CFTC?
The Commodity Futures Trading Commission serves as the primary federal watchdog for commodity derivatives, options contracts, and swap agreements in America. Because prediction market instruments behave like binary options economically, they come under CFTC oversight whenever offered 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 unlicensed event contract exchange. The settlement's principal components comprised:
- $1.4M financial penalty imposed by the regulator
- Commitment to discontinue markets that failed to meet standards
- Implementation of geographic restrictions preventing American users from accessing the platform directly
Following the settlement agreement, Polymarket has concentrated expansion efforts on international jurisdictions whilst investigating potential compliance frameworks for US operations.
Kalshi vs. CFTC (2023-2024)
Kalshi, operating as a CFTC-registered DCM, brought legal action against the CFTC when the regulator declined to approve its legislative outcome contracts. This pivotal litigation determined that the CFTC lacks authority to impose categorical prohibitions on event contracts merely because they reference electoral processes — a significant breakthrough for market participants. The DC Circuit's decision expanded opportunities for more diverse event-based contract approvals.
Nadex and Other Platforms
Nadex (North American Derivatives Exchange) has supplied CFTC-compliant binary options for an extended period, encompassing certain event-driven contracts. Their operational framework illustrates that lawful prediction markets remain achievable within the current American regulatory structure.
What Makes a Prediction Market Legal in the US?
For a platform to lawfully distribute prediction market instruments to American customers, it must satisfy these requirements:
- Obtain DCM registration through the CFTC
- Meet Core Principles — 23 operational standards addressing market integrity, risk management, and trader safeguards
- Secure contract authorisation — individual event contract specifications must undergo CFTC review without receiving an objection
- Deploy KYC/AML systems — customer verification and financial crime prevention mechanisms
The "Gaming" Exception
The Commodity Exchange Act (CEA) restricts event contracts categorised as "gaming" — language the CFTC applies expansively. Consequently, prediction markets tied to sporting outcomes remain contentious. Historically, the CFTC has contended that sports-linked contracts qualify as gaming, though Kalshi's judicial success has complicated this interpretation.
What Happens if You Trade on Unregistered Platforms?
Retail participants encounter limited direct consequences — the CFTC pursues platforms rather than individual traders. Nevertheless, participation on unregistered venues carries these drawbacks:
- CFTC protections for customer assets do not extend to your holdings
- Your funds lack segregation requirements that licensed exchanges enforce
- The CFTC cannot intervene if the platform becomes insolvent or engages in misconduct
For comprehensive insights into international regulatory frameworks, consult our 2026 global regulation guide. Interested in trading on a venue with robust safeguards? Explore PolyGram's features. Start trading on PolyGram →