CFTC and Prediction Markets: The Regulatory Landscape

Should you be engaging with prediction markets from within the United States — or contemplating doing so — grasping the CFTC's function within prediction markets is absolutely essential. This regulatory body dictates which contracts remain permissible to trade, which venues facilitate such trading, and the specific requirements governing those transactions.

What is the CFTC?

The Commodity Futures Trading Commission serves as the principal US government authority overseeing commodity futures, options, and swaps. Given that prediction market instruments behave much like binary options contracts, they come within CFTC authority whenever they are made available to American participants.

Key CFTC Enforcement Actions

Polymarket (January 2022)

Polymarket reached a settlement with the CFTC in the amount of $1.4 million for managing an unlicensed event contract marketplace. The settlement's principal components 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 US whilst investigating potential routes toward US regulatory compliance.

Kalshi vs. CFTC (2023-2024)

Kalshi, holding DCM registration with the CFTC, initiated litigation against the agency when it declined to permit its congressional control contracts. This pivotal ruling determined that the CFTC lacks authority to impose a comprehensive prohibition on event contracts merely because they pertain to electoral outcomes — representing a significant achievement for market participants. The DC Circuit's decision created opportunities for expanded event contract availability.

Nadex and Other Platforms

Nadex (North American Derivatives Exchange) has provided CFTC-regulated binary options over an extended period, encompassing certain event-based offerings. Their operational framework illustrates that lawful prediction markets may function within the current American regulatory framework.

What Makes a Prediction Market Legal in the US?

Operating prediction market instruments lawfully for American participants requires a platform to:

1. Register as a DCM with the CFTC
2. Comply with Core Principles — 23 requirements covering market surveillance, financial integrity, and customer protection
3. Obtain contract approval — each new event contract type must be submitted and not objected to by the CFTC
4. 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 remain prohibited — a definition the CFTC construes expansively. This explains the persistent regulatory uncertainty surrounding sports-related prediction markets. Historically, the CFTC has contended that sports event contracts constitute gaming, though Kalshi's judicial success has rendered this distinction less clear-cut.

What Happens if You Trade on Unregistered Platforms?

Retail participants encounter relatively limited direct consequences — the CFTC concentrates enforcement on venues rather than individual traders. Nevertheless, 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 →