Key takeaway: Since 2022, the CFTC has emerged as the principal US regulator governing prediction markets. Platforms seeking to operate legally must obtain Designated Contract Market status or risk regulatory action. Kalshi stands alone as a fully registered operator; Polymarket agreed to a settlement and restricts American users geographically.
Should you participate in prediction markets as a US resident — or plan to — grasping the CFTC's regulatory authority over prediction markets is essential. This federal body sets the rules for which contracts traders may access, which venues offer them, and what safeguards apply.
What is the CFTC?
The Commodity Futures Trading Commission serves as America's federal watchdog for commodity futures, options, and swaps. Prediction market contracts behave much like binary options instruments; consequently, the CFTC asserts jurisdiction whenever such contracts are marketed to American participants.
Key CFTC Enforcement Actions
Polymarket (January 2022)
The CFTC reached a settlement with Polymarket, imposing a $1.4 million fine for running an unlicensed event contract exchange. The settlement's principal provisions were:
- $1.4M financial penalty imposed by the CFTC
- Commitment to retire non-compliant contract offerings
- Implementation of geographic restrictions preventing US-based access
Following the settlement agreement, Polymarket has concentrated efforts on international expansion while investigating potential regulatory pathways for US operations.
Kalshi vs. CFTC (2023-2024)
Kalshi, holding DCM registration from the CFTC, initiated litigation challenging the agency's rejection of its election-related contracts. This pivotal ruling by the DC Circuit determined that the CFTC lacks authority to categorically prohibit event contracts merely because they pertain to electoral matters — a significant development for market participants. The appellate decision created opportunities for expanded event contract availability.
Nadex and Other Platforms
Nadex (North American Derivatives Exchange) has provided CFTC-supervised binary options trading for an extended period, encompassing certain event-linked instruments. This operational framework illustrates that compliant prediction market services can function within the existing American regulatory framework.
What Makes a Prediction Market Legal in the US?
To lawfully provide prediction market contracts to American customers, an exchange must:
- Secure DCM registration through the CFTC
- Meet Core Principles requirements — encompassing 23 standards addressing market oversight, financial safeguards, and trader protections
- Secure contract authorisation — all novel event contract categories require CFTC submission and non-objection
- Establish KYC/AML systems — customer identification and financial crime prevention measures
The "Gaming" Exception
Under the Commodity Exchange Act, event contracts touching upon "gaming" are forbidden — a definition the CFTC applies expansively. This restriction explains why sports-based prediction markets remain contentious. Historically, the CFTC has maintained that sports event contracts qualify as gaming; Kalshi's judicial success, however, has muddied these boundaries.
What Happens if You Trade on Unregistered Platforms?
End-users face comparatively limited exposure — the CFTC pursues platforms rather than individual traders. Nevertheless, participation on unregistered exchanges carries significant downsides:
- CFTC protections governing customer assets do not extend to your holdings
- Your deposits lack mandatory segregation safeguards
- You have no CFTC remedies if the platform becomes insolvent or engages in misconduct
For comprehensive coverage of international regulatory frameworks, consult our 2026 global regulation guide. Interested in trading through a properly regulated venue? Discover PolyGram's features. Start trading on PolyGram →