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.
Anyone trading prediction markets within the United States — or planning to do so — needs to grasp the CFTC's regulatory authority over prediction markets. This body establishes which contracts are tradeable, which venues are permitted, and what compliance obligations apply.
What is the CFTC?
The Commodity Futures Trading Commission serves as the primary federal overseer of commodity derivatives, options contracts, and swap agreements in America. Because prediction market instruments behave like binary options, they trigger CFTC oversight whenever they are made available to American participants.
Key CFTC Enforcement Actions
Polymarket (January 2022)
Polymarket reached a settlement with the CFTC for $1.4 million due to running an unlicensed event contract marketplace. The settlement's principal components were:
- $1.4M financial penalty imposed by the agency
- Commitment to discontinue markets that failed to meet regulatory standards
- Implementation of geographic restrictions preventing US-based traders from accessing the platform directly
Following this resolution, Polymarket has concentrated efforts on international expansion while investigating potential compliance pathways for US 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 political outcome contracts. This pivotal legal decision confirmed that the CFTC lacks authority to impose categorical prohibitions on event contracts merely because they reference electoral processes — a significant development for market participants. The DC Circuit's judgment expanded possibilities for additional event contract categories.
Nadex and Other Platforms
Nadex (North American Derivatives Exchange) has delivered CFTC-compliant binary options for an extended period, encompassing certain event-based instruments. Their operational framework illustrates that regulated prediction markets remain achievable within the current American regulatory structure.
What Makes a Prediction Market Legal in the US?
Launching prediction market instruments to American customers requires a platform to:
- Obtain DCM registration through the CFTC
- Satisfy Core Principles — encompassing 23 operational standards addressing surveillance mechanisms, fiscal safeguards, and investor protections
- Secure contract authorisation — submitting each contract specification for regulatory review and approval
- Deploy KYC/AML systems — establishing identity verification and financial crime prevention measures
The "Gaming" Exception
The Commodity Exchange Act (CEA) restricts event contracts classified as "gaming" — a definition the CFTC applies expansively. This limitation explains why sports-focused prediction markets remain contentious. Historically, the CFTC has contended that sports event contracts qualify as gaming activities, though Kalshi's courtroom success has muddied these boundaries.
What Happens if You Trade on Unregistered Platforms?
Retail traders themselves encounter limited enforcement exposure — the CFTC directs enforcement toward operators rather than individual participants. Nevertheless, utilising unregistered venues introduces significant hazards:
- CFTC safeguards for customer assets do not extend to your holdings
- Deposits lack the protection of segregated account mandates
- The CFTC cannot intervene if the operator becomes insolvent or engages in misconduct
For comprehensive information on international regulatory frameworks, consult our 2026 global regulation guide. Prepared to engage with a properly regulated venue? Discover PolyGram's trading mechanics. Start trading on PolyGram →