Key takeaway: Since 2022, the CFTC has emerged as the primary US authority overseeing prediction markets. Any platform wishing to operate legally must obtain registration as a Designated Contract Market (DCM) or risk regulatory action. Kalshi stands as the sole fully registered and compliant operator; Polymarket agreed to a settlement and restricts access from American users.
Should you engage with prediction markets as a US-based trader — or contemplate doing so — grasping the CFTC's authority over prediction markets is absolutely essential. This regulator determines which contracts remain lawful to purchase, which venues permit trading, and what operational requirements apply.
What is the CFTC?
The Commodity Futures Trading Commission serves as the federal body tasked with supervising commodity futures, options, and derivative swap arrangements across America. Because prediction market contracts behave much like binary options instruments, the CFTC asserts regulatory power whenever such contracts are marketed to American participants.
Key CFTC Enforcement Actions
Polymarket (January 2022)
Polymarket reached a settlement agreement with the CFTC for $1.4 million, having operated what amounted to an unlicensed platform for event-based contracts. The settlement's principal components encompassed:
- $1.4M financial penalty imposed by the CFTC
- Commitment to retire non-compliant contract offerings
- Implementation of geographic restrictions preventing American users from accessing the platform directly
Following this settlement, Polymarket has directed its efforts toward markets outside the United States whilst investigating potential compliance mechanisms for American operations.
Kalshi vs. CFTC (2023-2024)
Kalshi, which holds DCM registration from the CFTC, initiated legal proceedings against the agency after it declined to authorise Kalshi's proposed contracts tied to congressional elections. This pivotal litigation determined that the CFTC lacks authority to impose blanket prohibitions on event contracts merely because they reference electoral outcomes — a significant victory for market participants. The DC Circuit's decision expanded possibilities for offering a wider array of event-based contracts.
Nadex and Other Platforms
Nadex (North American Derivatives Exchange) has long operated CFTC-regulated binary options, encompassing certain event-linked offerings. Their operational framework proves that compliant prediction market services can function within the existing American regulatory structure.
What Makes a Prediction Market Legal in the US?
Entities seeking to lawfully provide prediction market contracts to American customers must satisfy these requirements:
- Secure DCM registration through submission to the CFTC
- Meet Core Principles standards — encompassing 23 distinct obligations addressing trade monitoring, financial stability, and consumer safeguards
- Secure contract authorisation — all event contracts require CFTC review and non-objection before launch
- Deploy KYC/AML systems — customer identification and illicit-finance prevention measures
The "Gaming" Exception
The Commodity Exchange Act (CEA) restricts event contracts categorised as "gaming" — language the CFTC interprets expansively. Consequently, prediction markets centred on sporting contests remain contentious territory. Historically, the CFTC has contended that sports-based contracts qualify as gaming, though Kalshi's judicial success has muddied these boundaries considerably.
What Happens if You Trade on Unregistered Platforms?
Individual participants encounter relatively limited exposure — regulatory enforcement concentrates on platform operators rather than customers. Yet participation on unregistered venues entails:
- Absence of CFTC protections governing your account assets
- Lack of mandatory segregation requirements for customer money
- No CFTC remedies available should the operator collapse or behave dishonestly
For comprehensive information on international regulatory frameworks, consult our 2026 global regulation guide. Interested in trading through a venue with robust safeguards? Discover PolyGram's platform. Start trading on PolyGram →