prediction market
A prediction market is a speculative information exchange where people can trade on the outcomes of future events. Odds and payouts are based on the perceived likelihood of an event occurring.
Prediction markets currently exist in a legal gray area. Most prediction markets posture themselves as futures markets where users can exchange futures contracts that reflect potential events. As futures markets, prediction markets would be regulated under the Commodity Futures Trading Commission (CFTC). The futures contracts offered are binary, meaning that there are only two potential outcomes: either yes, the event occurs, or no, the event does not occur.
In KalshiEX v. CFTC, 119 F.4th 58 (2024), the CFTC attempted to prevent the prediction market Kalshi from issuing contracts on the outcome of the 2024 congressional election, arguing that the issuance of those contracts qualified as illegal gaming or gambling. The U.S. District Court for the District of Columbia found in favor of Kalshi that under 7 U.S.C. § 7a-2(c)(5)(C)(i)(V), the contracts were not gaming and were permissible. On appeal to the United States Court of Appeals for the District of Columbia Circuit, the court rejected the CFTC’s request for a stay pending appeal, citing a lack of evidence for the CFTC’s claims. These rulings effectively opened the door for prediction markets to offer election predictions on their platforms. Some law enforcement authorities, such as the Arizona Attorney General, have accused prediction markets such as Kalshi of being gambling sites, as in their 2026 complaint against the company. See also: KalshiEX LLC v. Johnson et al (2026).
Other prediction markets have bypassed U.S. gambling laws by registering offshore. For example, in 2022, the prediction market Polymarket was fined $1.4 million by the CFTC and ordered to cease operations of the market in the United States. Following their civil penalty, Polymarket began operating offshore and barred U.S. residents from using the market. In 2025, the CFTC issued an Amended Order of Designation, under 7 U.S.C. § 8, which enabled Polymarket to resume operations in the United States under the CFTC-registered QCX LLC d/b/a Polymarket US.
Prediction markets often face accusations of permissiveness towards insider trading. By their nature, prediction markets allow people with special knowledge on the likelihood of events to speculate on those events. While safeguards do exist to mitigate the risk of insider trading on these platforms, it does still occur. For example, the Department of Justice (DOJ) indicted a soldier for using confidential information to place over $400,000 in bets on a prediction market relating to the timing of a military operation. See the DOJ indictment for more information.
[Last reviewed in April of 2026 by the Wex Definitions Team]
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