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 within the United States — or contemplating entry into this space — grasping the CFTC's role in prediction markets is absolutely essential. This regulatory body sets the boundaries for what instruments are tradeable, which venues permit such trading, and the procedural requirements that must be satisfied.
What is the CFTC?
The Commodity Futures Trading Commission serves as the principal US federal regulator overseeing commodity futures, options, and swaps trading. Given that prediction market contracts operate much like binary options instruments, they come within CFTC oversight whenever 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 provisions 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 redirected its efforts toward international markets whilst investigating potential routes toward US regulatory approval.
Kalshi vs. CFTC (2023-2024)
Kalshi, operating as a CFTC-registered DCM, initiated legal proceedings against the CFTC after the regulator declined to approve its congressional control contracts. This pivotal ruling determined that the CFTC lacks authority to impose a categorical prohibition on event contracts merely because they relate to electoral matters — representing a significant victory for market participants. The DC Circuit Court's decision broadened the scope for event contract expansion across the sector.
Nadex and Other Platforms
Nadex (North American Derivatives Exchange) has furnished CFTC-regulated binary options to market participants for an extended period, encompassing certain event-based instruments. This operational framework illustrates that compliant prediction markets remain achievable within the existing American regulatory framework.
What Makes a Prediction Market Legal in the US?
For a venue to lawfully furnish prediction market contracts to American participants, it must:
- Register as a DCM with the CFTC
- Comply with Core Principles — 23 requirements covering market surveillance, financial integrity, and customer protection
- Obtain contract approval — each new event contract type must be submitted and not objected to by the CFTC
- Implement KYC/AML — know-your-customer and anti-money-laundering protocols
The "Gaming" Exception
The Commodity Exchange Act (CEA) restricts event contracts involving "gaming" — language that the CFTC construes expansively. This constraint explains why sports-related prediction markets remain contentious. Historically, the CFTC has contended that sports event contracts fall within the gaming prohibition, although Kalshi's judicial success has complicated this interpretation.
What Happens if You Trade on Unregistered Platforms?
Retail traders themselves encounter limited direct liability — the CFTC pursues enforcement against venues rather than individual market participants. Nevertheless, participation on unregistered venues carries material disadvantages:
- 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 →