Are Prediction Markets Legal in the US?

Prediction market apps like Kalshi and Polymarket are legal and regulated in the United States… for the most part. 

First, it’s important to understand that these are NOT gambling sites. They're labeled as prediction platforms where users trade on the outcomes of various events. This puts them in a different legal bucket compared to online casinos and sportsbooks, but that doesn’t mean they can operate freely or without approval.

At the federal level, prediction markets are regulated by the Commodity Futures Trading Commission (CFTC). It treats them as financial exchanges, specifically under the Designated Contract Markets (DCMs) framework.

While this should make prediction markets legal and available nationwide, things aren’t entirely straightforward as of the last few months. 

Because prediction markets look and feel a lot like betting, some jurisdictions have begun pushing back. There have been legal challenges and growing scrutiny at the state level, with some of them trying to restrict or even ban these platforms altogether. 

So, while federal approval opened the door, the ongoing state-by-state resistance is now trying to slam it shut (or at least leave it partway closed), creating a more complicated legal landscape than it initially appeared.

Below, we’ll break down how the CFTC actually regulates prediction markets, then look at the latest state-level challenges, highlight a few fully regulated platforms, and finally explore where this space might be headed in the US over the next few years.

The Role of the CFTC: Regulating Event Contracts

The CFTC is an independent US federal agency established in 1974 to oversee certain parts of financial markets, such as futures, options, swaps, and derivatives. Its main job is to ensure these run fairly and transparently, acting as a watchdog and stepping in to prevent any potential manipulation or fraud.

Prediction markets fall under the CFTC’s oversight, with the commission classifying them as event-based contracts.

To operate legally in the United States, a platform must register with the CFTC as a Designated Contract Market (DCM) and await its approval, which comes with strict requirements regarding transparency and market integrity. The CFTC reviews what kinds of event contracts can be offered and monitors all trading activity.

State-by-State Availability: Where Can You Legally Trade?

You can trade on CFTC-approved prediction markets in most parts of the country, but, as mentioned above, some states are actively trying to limit certain market types and ban prediction markets within their jurisdictions.

Nevada was one of the first states to pull the lever by suing Kalshi for offering sports betting, which requires a state license. A Carson City judge initially issued a 14-day restraining order against the platform in March 2026, which was later extended in early April.

In Massachusetts, a judge also moved to block Kalshi’s sports markets, describing them in the context of unlicensed gambling activity. Meanwhile, Arizona escalated matters further by filing criminal charges against the platform, although a federal judge later stepped in and blocked the state’s Attorney General from continuing prosecution. 

Legal pressure is mounting in other states, as well, most notably in Michigan, where the site is currently listed as unavailable.

Other popular prediction market platforms haven’t gone unscathed. For example, Polymarket, Robinhood, and Crypto.com were all issued cease-and-desist letters in Connecticut and Arizona.

However, there’s pushback on the other side, too, with the DOJ suing Arizona, Connecticut, and Illinois to stop enforcing state-level gambling laws against CFTC-registered platforms.

Most states are still quiet on the issue, but some market-level restrictions may still apply there as well. For instance, in one of the latest golf-related promotions, Kalshi excluded residents of New York and Florida.

With ongoing legal battles, you should approach prediction markets by staying informed on the issue. Keep up with the news, learn whether your state is restricted on a given platform, and note any market-specific limitations before you join and start making trades.

Regulated Platforms: Who Currently Holds a Legal License?

CFTC-approved prediction market apps still haven’t flooded the market as sportsbooks have, but you can still choose among a handful of legitimate platforms depending on your preferences.

Kalshi stands heads and shoulders above the rest, with excellent market variety, good liquidity on most events, fiat and crypto banking, and a beginner-friendly UX with easy onboarding.

Polymarket is Kalshi’s biggest competitor in the space right now, and it even pulls ahead in a few areas, offering higher overall liquidity and lower fees. However, its main limitation at the moment is that it’s still running on beta, with American users having to register via a wishlist. Once it becomes public it will be interesting to see Kalshi vs. Polymarket comaprison.

Meanwhile, Crypto.com caters to crypto-first traders looking to branch into prediction markets, while Underdog Predict leverages its existing fantasy sports user base by allowing them to make predictions directly within the same app ecosystem. Other notable mentions include OG and Robinhood.

Non-Regulated Platforms: Are They Safe?

You may stumble upon some non-regulated prediction markets as well, like Augur or Omen. These are often decentralized platforms that rely on blockchain-based settlement, utilizing smart contracts to pay out winners directly.

However, while these options technically fall in a legal grey zone and can be used without the activity being explicitly illegal, they do carry certain security risks. For example, Augur faced an "invalid market" scandal a few years back, where malicious users flooded the platform with ambiguous markets to create invalid outcomes.

Then there are platforms like Novig, which currently operate on a sweepstakes model using virtual currencies instead of direct real-money trading. Because of this structure, they fall under sweepstakes regulations rather than financial market rules, meaning they don’t require federal approval to operate in the same way regulated exchanges do. 

That said, Novig has already shown broader ambitions, having formally applied for registration as a DCM in an effort to move into the fully regulated real-money prediction market space.

Tax Implications: Reporting Your Prediction Market Profits

Taxes on prediction market profits depend on how your activity is classified. If it is treated like gambling, profits are typically taxed as ordinary income, and losses can only be deducted up to 90% of your total losses against your winnings, provided you itemize your deductions. However, some prediction market activity may instead be treated more like trading financial contracts.

In that case, profits are usually seen as capital gains, meaning short-term gains are taxed at your regular income tax rate, while long-term ones may qualify for lower capital gains rates (typically 0%, 15%, or 20%, depending on the income level).

There is also an additional layer of complexity because certain contracts may be treated under derivatives-style rules, which can introduce "mark-to-market" reporting or even special blended tax treatment in some cases. On top of that, losses under capital gains treatment are generally more flexible, as they can offset other capital gains (and sometimes a portion of ordinary income), unlike gambling losses, which are now even more tightly restricted by recent tax code changes.

The key issue is that there is currently no clear IRS rule specifically tailored to prediction markets, so taxpayers and accountants often have to interpret existing frameworks on a case-by-case basis. This means two users on different platforms could end up reporting their profits differently.

Because of this split between gambling-style and trading-style treatment, reporting prediction market profits requires careful tracking of every trade and settlement outcome.

Bear in mind that nothing in this article is legal advice, so we urge you to talk with your accountant or financial advisor before making any trades.

The Future of Prediction Market Regulation in America

The prediction market industry has only started to heat up, but its future in the US is already uncertain. Differing interpretations of how these platforms should be classified mean their long-term position in the US market is still far from settled.

On the one hand, they are expanding and attracting more users each day, driven by an increasing interest in event-based trading. On the other hand, many states still view prediction markets as closely resembling gambling, which has led to a wave of legal challenges.

Time will ultimately tell whether prediction markets will become a firmly established part of the US financial landscape or remain caught in an ongoing tug-of-war between innovation and regulation.