In this guide
Whether prediction markets should be classified as gambling carries substantial consequences for taxation, legal status, and regulatory oversight. The determination hinges on factors including geographic location, the structure of the specific market, and the extent to which participant success reflects informed decision-making versus random chance. Below we examine where the debate currently stands.
The Skill vs Chance Distinction
Games of pure chance (roulette wheels, slot machines, typical lottery drawings) rely on outcomes beyond participant control. Prediction markets — when examined at the level of individual traders — feature outcomes substantially influenced by knowledge and analytical ability across repeated transactions:
- Empirical research identifies approximately 2% of prediction market participants as elite forecasters demonstrating measurable outperformance over time
- Studies examining forecast accuracy reveal that domain expertise produces reliably stronger financial performance
- Such evidence of skill-based returns suggests prediction markets warrant treatment alongside financial instruments rather than chance-based gaming
Regulatory Landscape by Jurisdiction (2026)
- US (CFTC): Event-based contracts fall under commodity derivatives regulation. Kalshi holds CFTC authorisation. Platforms lacking proper registration encounter significant legal ambiguity.
- UK (UKGC/FCA): Regulatory status remains ambiguous. Both gambling authorities and financial regulators assert overlapping jurisdiction. In practice, UK-based traders largely operate without formal restrictions.
- EU (MiCA/national): Prediction markets lack dedicated regulatory guidance at the EU level. Blockchain-based prediction platforms face partial coverage under MiCA provisions. National gambling licensing would be mandatory if classified as games of chance.
- Germany (GlüStV 2021): The German gambling statute addresses online games involving chance elements. Whether prediction markets fit this definition remains disputed among legal experts.
Academic Consensus
Scholarly research predominantly characterises prediction markets as mechanisms for capturing and synthesising collective information, displaying properties closer to financial derivatives than to wagering activities. Foundational work by Robin Hanson, alongside extensive subsequent scholarship, demonstrates that market prices generated through prediction markets contain actionable information — a characteristic fundamentally absent from pure gambling outcomes.
FAQ
- Are prediction market winnings taxed as gambling in the UK?
- Conceivably — the UK tax exemption for gambling proceeds might apply, potentially rendering prediction market gains non-taxable. However, this question remains unresolved and ultimately depends on how HMRC determines the nature of your particular trading activities.
- Can prediction markets be regulated like financial markets?
- Kalshi's authorisation by the CFTC proves such regulation is achievable. A prediction market structured as a designated contract market (DCM) or swap execution facility (SEF) operating under CFTC supervision remains entirely lawful for US-based traders.