Prediction markets in the United States operate in a regulatory environment that has evolved significantly over the past few years and continues to shift. The short answer for most Americans is that trading on federally regulated prediction markets is legal at the federal level, but a handful of states are pushing back through litigation. Understanding the regulatory framework — and where things stand right now — is essential for anyone who wants to trade with confidence.
The CFTC and the DCM Framework
Prediction markets in the US are regulated by the Commodity Futures Trading Commission, not by state gaming boards or the Department of Justice. The CFTC oversees event contracts — financial instruments that settle based on the outcome of a real-world event — under the Commodity Exchange Act. To legally offer these contracts to US customers, an exchange must register as a Designated Contract Market, or DCM.
DCM status is a rigorous designation. It requires exchanges to meet standards for financial integrity, market oversight, participant protection, and operational resilience. Kalshi became the first prediction market to receive DCM designation from the CFTC in 2020, establishing the legal template that now governs regulated US prediction markets. Once an exchange holds DCM status, it can legally offer its contracts to US customers, and state laws that conflict with that federal authorization face significant legal headwinds.
The History: From Gray Zone to Federal Clarity
Prediction markets were not always operating under a clear legal framework. For much of the prior two decades, the space existed in a legal gray zone. Intrade — once the most prominent prediction market globally — shut down its US operations in 2012 after CFTC enforcement action. PredictIt operated for years under a no-action letter from the CFTC, a form of informal regulatory permission that fell short of full authorization and was eventually revoked in 2022 before being partially restored through litigation.
Kalshi’s path was different. Rather than seeking informal permission, the company pursued full CFTC registration as a DCM. That process took years and faced significant internal opposition from the CFTC itself, which initially attempted to block certain categories of event contracts — most notably political event contracts — on public interest grounds.
Kalshi’s 2024 Federal Court Victory
The pivotal moment for US prediction markets came in 2024, when Kalshi won a federal lawsuit against the CFTC after the commission had tried to block the platform from offering political event contracts. A federal district court ruled in Kalshi’s favor, and the CFTC chose not to appeal, allowing Kalshi to launch markets on Congressional elections and other political outcomes. The ruling was widely interpreted as a decisive affirmation that CFTC-regulated event contracts on political topics are legal under federal law.
That decision cleared a major legal overhang and accelerated both growth and competition in the space. It also set a precedent that federally authorized prediction markets can operate even when individual states object — a principle that is now being tested in court.
State-by-State Legal Challenges
Several state attorneys general have filed legal challenges arguing that prediction markets on sporting events constitute sports betting under state law and therefore require state licensing. The core legal question is whether the CFTC’s federal authorization preempts state sports betting laws — a question that is working its way through federal courts as of early 2026.
New Jersey was one of the most prominent challengers. The state filed suit arguing that Kalshi’s sports event contracts required a New Jersey sports betting license. In April 2026, the Third Circuit Court of Appeals ruled in Kalshi’s favor, affirming federal preemption and finding that CFTC-regulated event contracts are not subject to state sports betting licensing requirements. That ruling applies across the Third Circuit, which covers New Jersey, Pennsylvania, and Delaware, and represents a significant legal win for the industry.
Other states including Nevada, Ohio, Illinois, Maryland, and Massachusetts have raised similar challenges or indicated interest in pursuing them. The legal landscape remains active, and additional rulings are likely in 2026 and beyond. However, the trend in federal court decisions has favored the preemption argument — that federal CFTC regulation supersedes state-level sports betting laws when a platform holds proper DCM authorization.
What This Means Practically for US Traders
For most US residents, trading on Kalshi or other CFTC-registered DCMs is legally permissible at the federal level right now. These platforms are not operating outside the law — they are operating under federal authorization, and the courts have repeatedly affirmed that authorization. The fact that some states are litigating does not mean trading is illegal for residents of those states; it means the legal question of state authority over these federally regulated instruments is still being argued in court.
Practically speaking, most regulated platforms have made a deliberate choice to operate nationally while the litigation plays out, based on the strength of the federal preemption argument. Some states may ultimately reach settlement agreements with platforms that include some form of state revenue sharing or registration, but outright prohibitions appear unlikely to survive federal court review given the current trajectory of decisions.
Traders in states that have filed active challenges should stay aware of any injunctions or orders that could affect platform availability in their state, and should monitor platform-specific communications about state-by-state access.
What to Watch Going Forward
The legal landscape for prediction markets will continue to develop throughout 2026. Key things to watch include the outcome of pending state lawsuits beyond the Third Circuit, whether the CFTC issues new guidance on event contract categories, and whether any state reaches a negotiated agreement with a major platform that could serve as a model for others. Congressional attention to prediction markets has also increased following their high-profile role in the 2024 election cycle, which could lead to either formal federal legislation clarifying their status or new CFTC rulemaking.
For now, the legal foundation for trading on federally registered DCMs is solid, the trend in federal courts has been favorable to the industry, and the most significant legal battles — including the foundational 2024 win — have already been fought and won.
Explore More
Once you know where prediction markets are legal, these resources will help you pick the right platform and get started safely.
- Kalshi Review — Our full review of Kalshi, one of the only CFTC-regulated prediction markets available to US traders.
- Best Prediction Market Apps 2026 — Compare every major prediction market platform to find the one available in your state.
- How Prediction Markets Work — A clear explainer on the mechanics behind prediction markets and how contracts are priced.
- How to Get Started on a Prediction Market — Ready to trade? This beginner’s guide walks you through every step.
- Prediction Markets Guides — Browse our full library of guides covering fees, platform comparisons, and more.