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 engage with prediction markets as a US-based trader — or are you exploring the possibility — grasping the CFTC's role in prediction markets is essential. This regulatory body controls which contracts you may lawfully participate in, which venues permit trading, and what compliance measures apply.
What is the CFTC?
The Commodity Futures Trading Commission serves as the primary federal regulator overseeing commodity futures, options, and derivatives transactions across US markets. Because prediction market contracts behave much like binary options instruments, they come within CFTC authority 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 operation of an unlicensed event contract exchange. The settlement's principal components were:
- $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 efforts towards markets outside the US whilst investigating potential routes toward US regulatory approval.
Kalshi vs. CFTC (2023-2024)
Kalshi, holding CFTC-registered DCM status, initiated litigation against the CFTC when the regulator objected to 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 outcomes — a significant breakthrough for market participants. The DC Circuit's decision paved the way for expanded event contract availability.
Nadex and Other Platforms
Nadex (North American Derivatives Exchange) has operated CFTC-regulated binary options for an extended period, encompassing certain event-driven contracts. Their operational framework illustrates that compliant prediction markets remain achievable within the current US regulatory system.
What Makes a Prediction Market Legal in the US?
For a platform to lawfully provide prediction market contracts to American participants, it must satisfy these requirements:
- 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) disallows event contracts tied to "gaming" — language the CFTC interprets expansively. This restriction explains why sports-related prediction markets remain contentious. Historically, the CFTC has contended that sports event contracts qualify as gaming, though Kalshi's judicial success has muddied this distinction.
What Happens if You Trade on Unregistered Platforms?
Retail traders themselves encounter limited direct enforcement exposure — the CFTC pursues platforms rather than individual participants. Nevertheless, using unregistered venues introduces these risks:
- 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 comprehensive overview of international regulatory frameworks, consult our election forecasting resources and 2026 global regulation guide. Interested in trading through a properly licensed venue? Learn how PolyGram works. Start trading on PolyGram →