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 as a US resident — or thinking about getting started — grasping the CFTC's role in prediction markets is absolutely essential. This regulatory body sets the boundaries for what contracts you may legally participate in, which operators can serve you, and the safeguards that apply.
What is the CFTC?
The Commodity Futures Trading Commission stands as the primary federal regulator overseeing commodity derivatives, options contracts, and swap agreements across US markets. Because prediction market contracts behave much like binary options instruments, the CFTC claims authority over them 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 following its operation of an unregistered event contract exchange. The settlement's principal components were:
- $1.4M financial penalty imposed by the CFTC
- Commitment to discontinue non-compliant contract offerings
- Implementation of geographic restrictions preventing US-based users from accessing the platform directly
Following this resolution, Polymarket has redirected efforts toward international expansion while investigating potential compliance pathways for the American market.
Kalshi vs. CFTC (2023-2024)
Kalshi, operating as a CFTC-registered DCM, brought legal action against the CFTC after the regulator denied approval for its contracts tied to legislative outcomes. This pivotal ruling determined that the CFTC lacks authority to impose blanket prohibitions on event contracts merely because they reference political processes — a significant development for the sector. The DC Circuit's decision expanded possibilities for offering more diverse event-based contracts.
Nadex and Other Platforms
Nadex (North American Derivatives Exchange) has delivered CFTC-compliant binary options trading for an extended period, encompassing certain event-driven contracts. Their operational structure illustrates that regulated prediction markets can function within the current American regulatory framework.
What Makes a Prediction Market Legal in the US?
For a platform to lawfully provide prediction market contracts to American customers, it must satisfy these requirements:
- Obtain DCM registration from the CFTC
- Meet Core Principles — 23 operational standards encompassing trade monitoring, fiscal safeguards, and investor protections
- Secure contract authorisation — each prospective contract must be formally submitted and not rejected by the CFTC
- Establish KYC/AML systems — customer identification and financial crime prevention mechanisms
The "Gaming" Exception
The Commodity Exchange Act (CEA) restricts event contracts classified as "gaming" — a definition the CFTC applies expansively. This explains why sports markets remain legally uncertain. Historically, the CFTC has contended that sports-related contracts qualify as gaming, though Kalshi's recent court success has muddied these distinctions.
What Happens if You Trade on Unregistered Platforms?
Individual participants generally encounter limited direct enforcement consequences — the CFTC pursues operators rather than traders. Nevertheless, using unregistered venues carries substantial risks:
- CFTC safeguards for customer assets do not extend to your account
- Your deposits lack the statutory segregation protections
- You have no CFTC remedy if the operator collapses or engages in misconduct
For a comprehensive overview of international regulatory frameworks, consult our 2026 global regulation guide. Interested in trading through a properly regulated venue? Discover how PolyGram operates. Start trading on PolyGram →