Are Political Prediction Markets Legal in the US?

Yes, political prediction markets are legal in the United States, but their legal status depends entirely on the specific platform you use and how it is regulated. While some financial exchanges have secured federal approval to offer election-based contracts to American residents, other popular platforms remain restricted or operate under strict academic limitations.

Understanding the legal landscape of political betting requires looking at federal financial regulations, landmark court cases, and the distinction between regulated derivatives and unregulated offshore platforms. If you are looking to hedge financial risk based on election outcomes or simply want to trade on your political knowledge, here is everything you need to know about the legality of prediction markets in the US.

For years, the federal government maintained a strict stance against election betting. The Commodity Futures Trading Commission (CFTC), which regulates derivatives, options, and futures markets in the US, routinely blocked financial exchanges from listing contracts tied to political outcomes. The agency argued that political betting fell under “gaming” or was “contrary to the public interest” under the Commodity Exchange Act (CEA).

However, a monumental legal battle fundamentally rewrote the rules.

In 2023, the regulated prediction market Kalshi sued the CFTC after the agency blocked its plans to list congressional control contracts. In September 2024, a US District Court judge ruled in favor of Kalshi, stating that the CFTC had exceeded its statutory authority. The court clarified that betting on which party controls Congress did not constitute “gaming” or illegal activity under federal law.

Despite immediate appeals and attempts by the CFTC to halt the ruling, the DC Circuit Court of Appeals allowed Kalshi to proceed. This decision effectively legalized political prediction markets on federally regulated exchanges for US residents. Following this precedent, major retail brokerages quickly entered the space, offering contracts on presidential elections, congressional races, and other political events to millions of everyday American investors.

Regulated vs. Unregulated: A Breakdown of the Major Platforms #

Because the legal status of political betting is tied to specific platforms, traders must understand where each major service stands under US law.

1. Kalshi (Fully Regulated & Legal) #

Kalshi is a designated contract market (DCM) regulated by the CFTC. Because of its landmark legal victory, Kalshi legally offers event contracts on US elections to American citizens. Because it is a regulated financial exchange, it operates with strict consumer protections, clear clearinghouse mechanisms, and direct integration with US banking systems. There are no low-volume caps, and high-net-worth individuals or institutions can trade significant capital here.

PredictIt is an online prediction market run by the Victoria University of Wellington in New Zealand. Since 2014, it has operated legally in the US under a “No-Action” letter from the CFTC, which allowed it to exist as an academic research tool. To maintain this status, PredictIt operates under strict limits:

  • A maximum investment limit of $850 per specific contract.
  • A cap of 5,000 unique traders per individual market.

In 2022, the CFTC attempted to revoke PredictIt’s No-Action letter, which would have forced the platform to shut down. PredictIt sued the commission, and a federal appeals court granted an injunction allowing the platform to continue operating while the lawsuit plays out. As of today, PredictIt remains legal and operational for US residents under this ongoing court protection.

3. Polymarket (Offshore & Blocked for US Users) #

Polymarket is a decentralized, blockchain-based prediction market that grew into a global powerhouse. However, in 2022, Polymarket reached a $1.4 million settlement with the CFTC for offering unregistered swaps. As part of that settlement, Polymarket agreed to geoblock all US IP addresses from trading on its platform.

While Polymarket is highly visible in global news, it is not legal for US residents to trade on the platform. Using Virtual Private Networks (VPNs) to bypass these geoblocks violates the platform’s terms of service and places American users in a legal gray area where their funds could be frozen or seized.

4. Registered Retail Brokerages (Fully Regulated & Legal) #

Following Kalshi’s legal victory, mainstream financial brokerages—such as Interactive Brokers (via its ForecastEx exchange) and Robinhood—launched their own political event contracts. These platforms operate legally under CFTC oversight, allowing US retail investors to trade on political outcomes alongside their traditional stocks and ETFs.

How Prediction Markets are Regulated #

When you buy a contract in a political prediction market, you are not placing a traditional sports bet. Instead, you are buying a binary option, which is a type of financial derivative.

  • Each contract is priced between $0.00 and $1.00.
  • If the event happens (e.g., a specific candidate wins the presidency), the contract expires at $1.00.
  • If the event does not happen, the contract expires at $0.00.
  • Your profit or loss is the difference between what you paid for the contract and its expiration value (or the price you sold it at before expiration).

Because these are financial derivatives, they fall under the jurisdiction of the CFTC rather than state gaming commissions. This distinction is vital: sports betting is legalized on a state-by-state basis following the Supreme Court’s 2018 repeal of PASPA (Professional and Amateur Sports Protection Act). Conversely, regulated political prediction markets are governed by federal financial laws, making them legally accessible nationwide, even in states that ban sports betting.

Prediction Markets vs. Traditional Polling #

Many political analysts and traders look to prediction markets because they believe “skin in the game” forces participants to process information more objectively than pollsters or pundits. Markets react instantaneously to breaking news, candidate debates, or sudden economic shifts.

However, prediction markets are not infallible. They can be prone to speculative bubbles, demographic biases (as the average trader skew younger, male, and more tech-savvy than the actual voting public), and liquidity issues. Traditional polling, when conducted using rigorous scientific methodologies, captures a broader and more representative sample of the actual electorate.

Rather than viewing them as competitors, many experts use both tools in tandem to understand the political landscape. For instance, you can use an online election tracker to cross-reference scientific polling trends with real-time prediction market pricing. Combining raw polling data with market sentiment often yields a more comprehensive view of a race than relying on either metric alone.

Financial Risks and Tax Implications #

If you decide to trade on US-legal political prediction markets, you must treat them with the same financial caution as stock trading.

  • Tax Liabilities: Winnings on regulated US exchanges like Kalshi or PredictIt are subject to US tax laws. For most retail traders, profits are treated as capital gains or ordinary income, depending on how long the contracts were held and the specific platform’s structure. Regulated platforms will issue Form 1099s to you and the IRS if you cross certain profit or volume thresholds.
  • Liquidity Risk: In smaller or highly specific political markets, there may not be enough buyers or sellers. This means you could get stuck in a position, unable to sell your contracts before the event occurs.
  • Fees: Many platforms charge fees that can eat into your profits. PredictIt, for example, historically charges a 10% fee on earnings and a 2% fee on withdrawals, while regulated exchanges like Kalshi operate on different fee or spread structures.

To get the most out of these tools without risking capital unnecessarily, many users prefer to monitor the data externally. By using an app to track polls and market sentiment side-by-side, you can keep a close eye on public opinion and market trends without needing to fund an active trading account.

Frequently Asked Questions #

No. While sports betting is legal in over 30 states, state gaming regulations explicitly prohibit sportsbooks (like DraftKings or FanDuel) from offering odds on US political elections. Political wagering is restricted to CFTC-regulated financial contracts, not traditional sportsbooks.

Kalshi is a CFTC-regulated designated contract market that went through the formal federal approval and legal clearing process. Polymarket is an offshore, decentralized platform that did not register its financial products with the CFTC, leading to its 2022 settlement and subsequent ban on US participants.

Are my winnings on political prediction markets taxed? #

Yes. Any net profits earned on US prediction markets are considered taxable income by the IRS. Regulated platforms like Kalshi and PredictIt collect taxpayer information and report earnings using tax documents like the 1099-B or 1099-K.

How accurate are political prediction markets compared to polls? #

Prediction markets excel at incorporating breaking news and real-time events faster than polls, which can take days to field and analyze. However, polls are designed to be statistically representative of the actual voting electorate, whereas prediction markets reflect the opinions of active financial traders. Using both data sources together provides the most accurate forecasting model.