Prediction Markets in the USA: Legal Status & Platforms

The United States has the most complex and rapidly evolving legal landscape for prediction markets in the world. From the CFTC's regulatory battles with offshore platforms to newly approved event contracts on regulated exchanges, the American prediction market ecosystem in 2026 looks drastically different from even a few years ago.

Whether you are a first-time user curious about the rules or an experienced trader navigating compliance, this guide breaks down everything you need to know about prediction markets in the USA.

The Legal Framework for Prediction Markets in the US

Prediction markets in the United States fall under the jurisdiction of the Commodity Futures Trading Commission (CFTC). The CFTC treats prediction market contracts as event-based derivatives, which means they are subject to the same regulatory framework that governs futures and options trading.

The key legal distinction comes down to whether a platform operates as a Designated Contract Market (DCM) registered with the CFTC or as an offshore/decentralized platform outside US regulatory oversight.

CFTC-Regulated Platforms

As of 2026, several platforms have secured CFTC approval to offer event contracts to US residents:

The Polymarket Situation

Polymarket, the world's largest prediction market by volume, operates on the Polygon blockchain and is not registered with the CFTC. After a 2022 settlement with the CFTC, Polymarket officially restricted access for US-based users. However, the platform remains the global leader in prediction market liquidity and depth.

For users outside the US, Polymarket offers the deepest markets and best liquidity available anywhere. International traders can access the full range of markets with minimal restrictions.

State-by-State Variations

Even with a federal regulatory framework, individual states add their own layer of complexity. Some states treat prediction markets similarly to gambling, while others have carved out specific exemptions.

States With Favorable Regulations

• New York: Financial innovation hub with relatively permissive stance on regulated event contracts
• Wyoming: Crypto-friendly legislation extends to blockchain-based prediction platforms
• Colorado: Progressive fintech regulation with clear event contract guidelines
• Texas: Light-touch regulation for CFTC-approved platforms

States With Stricter Oversight

• Nevada: Gaming Commission may classify certain prediction contracts as wagering
• New Jersey: Sports-adjacent markets face additional scrutiny under state gambling laws
• Washington: Historically restrictive toward online prediction and betting platforms

The 2024 Election Impact

The 2024 US presidential election was a watershed moment for prediction markets. Platforms like Polymarket and Kalshi saw record-breaking volumes as traders bet billions on the election outcome. The accuracy of prediction markets in forecasting the result, often outperforming traditional polls by significant margins, generated enormous mainstream attention.

This success accelerated regulatory conversations. By early 2025, bipartisan congressional interest in creating a clear legal framework for prediction markets had grown substantially. Several bills were introduced to provide explicit legal authorization for event contracts on regulated exchanges.

Tax Implications for US Traders

If you trade on CFTC-regulated platforms within the US, your profits are subject to federal taxation. The IRS treats prediction market gains similarly to other short-term capital gains, though the specifics can vary.

Key Tax Considerations

• Short-term capital gains: Profits from contracts held less than one year are taxed at your ordinary income rate
• Section 1256 contracts: Some event contracts on DCM platforms may qualify for 60/40 tax treatment (60% long-term, 40% short-term rates)
• Record keeping: Platforms like Kalshi provide 1099 forms, but you are responsible for accurate reporting
• Losses: Trading losses can offset gains and up to $3,000 of ordinary income per year

How to Start Trading in the USA

For US residents, the path to trading prediction markets depends on which platform you choose. Here is a step-by-step approach for the most common options:

1. Choose a regulated platform: Kalshi is the primary CFTC-regulated option for US residents with the broadest market selection
2. Complete identity verification: KYC (Know Your Customer) requirements are mandatory on regulated platforms. You will need a government ID and proof of address
3. Fund your account: Most regulated platforms accept bank transfers, debit cards, and in some cases wire transfers
4. Start with familiar topics: Begin with markets you understand well, like economic indicators or tech milestones, before expanding into less familiar territory
5. Track your trades: Maintain records for tax purposes from the very beginning

The Future of US Prediction Markets

The trajectory for prediction markets in the US is clearly positive. Several factors point to continued expansion in 2026 and beyond:

• Congressional action: Multiple bills aim to create explicit legal authority for event contracts, reducing regulatory uncertainty
• Institutional adoption: Major financial institutions are exploring prediction market data for risk assessment and forecasting
• Media integration: News organizations increasingly cite prediction market odds alongside traditional polling data
• Academic validation: Continued research demonstrates the superior forecasting accuracy of prediction markets

Frequently Asked Questions

Are prediction markets legal in the United States?

Yes, prediction markets are legal in the US when offered through CFTC-regulated platforms like Kalshi. The regulatory framework continues to evolve, with more clarity expected from Congress in 2026. Offshore platforms like Polymarket are restricted for US residents but widely available internationally.

Can I use Polymarket from the US?

Polymarket officially restricts US users following its 2022 CFTC settlement. US residents interested in prediction markets should explore CFTC-regulated alternatives or monitor any changes in Polymarket's US access policies. International users can access Polymarket freely.

Do I have to pay taxes on prediction market profits?

Yes. Prediction market gains are taxable income in the US. Profits are generally treated as short-term capital gains, though some contracts may qualify for more favorable Section 1256 treatment. Keep detailed records and consult a tax professional.

What is the minimum amount needed to start trading?

Most platforms allow you to start with as little as $1 per contract. Kalshi has no minimum deposit requirement, making it accessible for beginners who want to start small and learn the mechanics before scaling up.

Which US states restrict prediction market trading?

Availability varies by platform and market type. Some states with strict gambling laws may restrict access to certain event contracts, particularly those related to sports outcomes. Check your specific platform's terms of service for state-level availability.