Prediction markets are more than they appear, and the misconceptions surrounding them are holding back a powerful financial innovation. From unfair comparisons to casino gambling to assumptions of zero oversight, the narrative around prediction markets is often wrong.
The reality is that these markets are peer-to-peer exchanges regulated by the CFTC, and they offer real value to businesses, policymakers, and individuals alike.
Prediction Markets are simply marketplaces that connect buyers with sellers on contracts based on the outcomes of future events. These events span a wide range of topics, including election results, economic indicators, and sports outcomes.
While they may resemble casino-style gambling at first glance, prediction markets have key differences, which is why they so clearly should be regulated by the CFTC. Prediction markets are driven by purely supply/demand dynamics and there is no “house” to win if a consumer loses.
Just like other financial markets, profits or losses are based solely on how accurate the individual’s investment thesis is, and there is no central “book” that sets odds in ways to ensure the “book” always wins. These are marketplaces that simply bring together willing buyers with willing sellers.
Because participants trade peer-to-peer contracts on exchanges based on the underlying outcome of future events, these instruments are better classified as swaps rather than gambling.
Prediction markets in the United States are not unregulated. The Commodity Futures Trading Commission (CFTC) oversees event contracts under the Commodity Exchange Act, as it does with other derivatives, and the Department of Justice (DOJ) has the power to bring criminal charges for perpetrators of insider trading or fraud on these markets.
This regulatory framework imposes requirements for platform registration including AML/KYC checks, customer protections, and safeguards against fraud and market manipulation. Platforms must comply with these standards to operate legally in the United States.
Prediction markets serve as powerful forecasting tools. By aggregating the beliefs of many participants, they generate probability estimates for future outcomes that are often more accurate than traditional methods.
Unlike expert-driven forecasts, prediction markets do not privilege credentials or authority. Instead, they rely on incentives; participants earn rewards for accurate predictions, which encourages honest and information-driven participation.
These markets can complement traditional polling by filling gaps and providing additional data. Their applications extend beyond politics to areas such as economic forecasting, offering valuable insights to companies, policymakers, and analysts alike and the ability to financially hedge against future events by individuals and entities financially effected by the potential outcome of those events.
As interest in prediction markets has increased, so too have misconceptions surrounding them. Lawmakers, news outlets, financial experts, and citizens frequently discuss three common myths: that prediction markets are casino-style gambling, that they are unregulated, and that they have no benefit. Each of these claims is misleading and contributes to an overly negative and inaccurate perception of prediction markets.
Prediction markets are not simply gambling or sports betting. A prediction market is an online platform where users buy and sell contracts based on the outcomes of future events. Unlike traditional gambling, which typically involves betting against a “house,” prediction markets operate as peer-to-peer exchanges where participants trade with one another. Participants can also trade in and out of their positions in real time based on new information.
In addition, event contracts in prediction markets are swaps or other derivatives depending on their structure. Like other swaps, these contracts include cash settlements based on the occurrence of an underlying event. This classification has important legal implications, as regulators and courts increasingly analyze event contracts under the Commodity Exchange Act’s framework for derivatives. Recently, in Kalshi v Flaherty, the U.S. Court of Appeals for the Third Circuit stated that event contracts satisfy the CEA’s definition of a swap.
Prediction markets are not an unregulated “Wild West,” as some assume. Because many prediction market contracts fall within the category of derivatives, the CFTC oversees them under the Commodity Exchange Act. The CFTC has exclusive jurisdiction over swaps. The CFTC imposes strict regulations under 17 CFR 40.11 over what events can’t be used as a basis for a contract.
It also requires platforms to create rules to protect participants from fraud and market manipulation. Prediction markets can face serious consequences from the CFTC if they violate any of their regulations.
Prediction markets can serve as valuable tools for society. One of their primary strengths is their ability to aggregate information from a wide range of participants. Unlike traditional polling, which may rely on limited samples or emphasize expert opinionβ , prediction markets incorporate diverse viewpoints and incentivize accuracy through financial stakes. In some cases, prediction markets have matched or exceeded the accuracy of traditional polling.
This aggregation of information extends beyond politics. Businesses can use prediction markets to forecast demand or assess regulatory risk. As understanding of these platforms grows, their potential to contribute to more informed and efficient decision-making is likely to expand.
Diercks, Anthony M., Jared Dean Katz, and Jonathan H. Wright (2026). “Kalshi and the Rise of Macro Markets,” Finance and Economics Discussion Series 2026-010. Washington: Board of Governors of the Federal Reserve System. https://doi.org/10.17016/FEDS.2026.010
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