The question of whether prediction markets are legal has a clear answer in 2026: yes, prediction markets are legal in the United States when operated by exchanges regulated by the Commodity Futures Trading Commission (CFTC). But the regulatory landscape is more nuanced than a simple yes or no, and understanding the details matters — both for choosing a platform and for knowing your rights as a trader.
The Federal Framework: CFTC Regulation
Prediction markets in the US are regulated as event contracts under the Commodity Exchange Act (CEA). The CFTC, which oversees futures and derivatives markets, has jurisdiction over these contracts.
For a prediction market to operate legally, it must receive CFTC approval as a Designated Contract Market (DCM) — the same regulatory designation held by the Chicago Mercantile Exchange and other major futures exchanges. This designation requires:
- Segregated customer funds — Trader deposits must be held separately from company operating funds
- Market surveillance — Ongoing monitoring for manipulation and fraud
- Reporting requirements — Regular filings with the CFTC on trading activity and financial health
- Fair access — Non-discriminatory access to the marketplace
- Clear resolution rules — Transparent criteria for how each contract settles
As of 2026, several entities hold DCM status for event contracts: Kalshi (the first purpose-built prediction market to receive designation), the CME Group (which powers FanDuel Predicts), and others including Gemini Titan and the entity behind PredictIt.
Prediction Markets vs. Gambling: The Legal Distinction
The distinction between prediction markets and gambling is not just semantic — it determines which regulators oversee the activity and which laws apply.
Gambling is regulated at the state level by gaming commissions. It is generally defined as placing a wager on an event primarily determined by chance, for entertainment purposes. Sports betting, casino games, and lotteries fall into this category.
Prediction market event contracts are regulated at the federal level by the CFTC. They are classified as financial derivatives, similar to futures and options. The legal rationale is that event contracts serve a legitimate economic purpose — price discovery (revealing the market's probability estimate) and hedging (allowing people to manage risk exposure to real-world events).
A farmer who buys a contract on drought conditions is hedging crop risk. A business owner who buys a contract on election outcomes is managing regulatory uncertainty. These are economic functions, not entertainment.
This distinction has been reinforced by several legal and regulatory developments:
- The CFTC explicitly asserted jurisdiction over event contracts in the Dodd-Frank Act of 2010
- Kalshi won a landmark federal court ruling in 2024 affirming the right to list election event contracts over CFTC objections
- Multiple CFTC commissioners have publicly stated that event contracts are derivatives, not gambling
State-by-State Availability
While prediction markets are federally regulated, state laws still affect availability. Here is the current landscape:
Broadly available (42+ states): Kalshi, Robinhood Sports, and most CFTC-regulated platforms operate in the majority of states. These platforms proactively restrict access in states where the legal environment is uncertain.
All 50 states (for certain markets): FanDuel Predicts offers non-sports prediction contracts nationwide. Sports-specific contracts from FanDuel are limited to the 18 states where FanDuel holds sports betting licenses.
Restricted in some states: States with aggressive gambling regulations — or that have not clearly distinguished event contracts from gambling — may block certain platforms. New York and a few other states have been particularly cautious.
Crypto-native platforms: Polymarket, which acquired a CFTC-regulated entity, operates in most states but has faced cease-and-desist orders in some jurisdictions. Its availability is evolving.
The general trend is toward broader availability. As CFTC regulation matures and courts continue to distinguish event contracts from gambling, more states are clarifying their position in favor of legal access.
Recent Regulatory Developments
The regulatory environment for prediction markets has shifted dramatically in the past two years:
The Kalshi Election Contracts Ruling (2024)
In a landmark decision, a federal court ruled that Kalshi could list contracts on US congressional elections. The CFTC had initially objected to election contracts, arguing they were too close to gambling. Kalshi sued, and the court sided with the exchange — finding that election event contracts serve legitimate economic purposes and are within the CFTC's regulatory framework. This ruling opened the door for prediction markets to cover the full range of political events.
Mainstream Adoption (2025-2026)
The entry of major financial and entertainment brands transformed the regulatory conversation:
- Robinhood launched Sports with zero-commission prediction trading powered by Kalshi
- FanDuel partnered with CME Group to offer event contracts alongside its sportsbook
- DraftKings entered through a Crypto.com partnership
- Gemini launched a CFTC-regulated prediction market
- Interactive Brokers expanded its ForecastTrader product
This wave of mainstream adoption has normalized prediction markets in the eyes of regulators, lawmakers, and the public. When the largest brokerage in the US (by retail users) offers prediction trading, it becomes much harder to argue the activity should be prohibited.
Congressional Interest
Several members of Congress have expressed support for prediction markets as tools for policy analysis and public information. While no comprehensive federal prediction market legislation has passed as of early 2026, the political environment is generally favorable, with bipartisan support for innovation in financial markets.
What Remains Restricted
Not all event contracts are approved. The CFTC can prohibit contracts it deems contrary to the public interest. Categories that remain restricted or controversial include:
- Terrorism and violence — Contracts on acts of terrorism or violent events are prohibited
- Activities unlawful under state law — The CFTC has authority to block contracts on activities that are illegal in relevant jurisdictions
- Certain gaming events — While sports contracts are broadly approved, some niche gaming or entertainment contracts face scrutiny
The CFTC evaluates new contract types on a case-by-case basis, balancing innovation with public interest considerations.
Tax Treatment
Prediction market profits are taxable income in the United States. The specific treatment depends on the platform and contract type:
- CFTC-regulated contracts are generally treated as Section 1256 contracts, which receive favorable tax treatment: 60% of gains are taxed as long-term capital gains and 40% as short-term, regardless of how long you held the position. This is the same treatment given to regulated futures contracts.
- Platforms issue tax documents (typically 1099-B forms) that report your trading activity to the IRS.
- Losses can be used to offset other capital gains.
Tax treatment for prediction markets is still evolving, and individual circumstances vary. Working with a tax professional familiar with derivatives trading is advisable.
Choosing a Regulated Platform
For US traders, the safest approach is to use platforms with clear CFTC regulation. Key indicators of a properly regulated platform:
- DCM designation — The platform (or its settlement partner) holds a CFTC Designated Contract Market designation
- Segregated funds — Customer deposits are held separately from company accounts
- KYC requirements — Identity verification is mandatory, which means the platform is complying with anti-money-laundering (AML) laws
- US-based operations — The company has a US presence and is subject to US court jurisdiction
- Transparent rules — Market resolution criteria are clearly published before trading begins
All major platforms listed on regulated prediction market comparison sites meet these criteria. If a platform does not require identity verification and operates from an unclear jurisdiction, proceed with caution.