If you have spent any time betting on sports, you already understand something most people do not: pricing probability. When a sportsbook posts a -150 favorite, they are saying that team has roughly a 60% implied chance of winning. Prediction markets work from the same foundation — except instead of a sportsbook setting the line, the market itself does. And instead of betting against the house, you are trading against other participants.
Prediction markets are regulated financial exchanges where participants buy and sell contracts tied to the outcome of real-world events. Each contract is structured as a simple yes-or-no question. If you believe the answer is yes, you buy a contract. If you think the answer is no, you sell it. Contracts are priced between one cent and 99 cents, and each one pays out exactly one dollar if correct — or nothing if it is wrong. The price of a contract at any given moment reflects the crowd’s collective estimate of the probability that event will occur.
How Prediction Markets Work Mechanically
The mechanics are straightforward once you have the framework. Take a market asking whether the Federal Reserve will raise interest rates at its next meeting. If that contract is trading at 35 cents, the market is saying there is a 35% chance of a rate hike. You can buy the yes contract for 35 cents. If the Fed raises rates, your contract settles at one dollar — a 65-cent profit per contract. If rates hold, you lose your 35-cent investment.
Prices are not set by the exchange — they are discovered through trading activity, the same way stock prices are set by buyers and sellers rather than by the stock exchange itself. When new information enters the market, traders respond and prices adjust. A key piece of economic data, a breaking news story, or a shift in polling can move a contract’s price rapidly. This makes prediction markets extraordinarily responsive to information — often faster and more accurate than traditional polling or analyst forecasts.
Contracts are matched through an order book system. You can place a market order and get filled immediately at the best available price, or you can place a limit order at a price you choose and wait for a counterparty to accept. This is identical to how equities or futures trade, which is why prediction markets fall under financial regulation rather than gambling law.
Are Prediction Markets Legal in the United States?
Yes — and understanding why requires a quick look at how they got here.
For decades, prediction markets existed in a gray zone in the US. Academic platforms like the Iowa Electronic Markets operated under no-action letters from the CFTC, and offshore platforms like Intrade attracted American users before shutting down under regulatory pressure in 2013. The core legal question was always whether event contracts constituted gambling — which is regulated state by state — or financial derivatives, which fall under federal jurisdiction through the Commodity Exchange Act (CEA).
Kalshi, founded in 2018 and launched publicly in 2021, pursued a different path: full federal approval. The company registered as a Designated Contract Market (DCM) with the Commodity Futures Trading Commission, making it the first exchange in US history to offer regulated event contracts to retail participants. But approval for certain markets — particularly election contracts — was initially blocked by the CFTC, which argued they were contrary to the public interest.
Kalshi sued the CFTC in 2023, challenging that denial. In September 2024, a federal district court ruled in Kalshi’s favor, holding that election-based contracts were not illegal gambling under the CEA. The CFTC reversed its position, and Kalshi launched political markets shortly after. Early 2025 saw Kalshi expand into sports markets, triggering a new wave of legal disputes with state gaming regulators across the country.
The core legal argument from state regulators is that prediction markets are functionally identical to sports betting — and therefore subject to state gambling licensing requirements. Kalshi’s counter-argument is that its CFTC designation provides exclusive federal jurisdiction, preempting state law. Courts have been split. A federal appeals court sided with Kalshi in New Jersey in April 2026, marking the first appellate-level victory for the industry. Maryland and Massachusetts courts have ruled the other way. The litigation is ongoing, with cases moving through multiple federal circuits simultaneously.
What this means practically: Kalshi is live and legal for non-sports markets in all US states. Sports event contracts are restricted in a number of states — including Arizona, Illinois, Massachusetts, Maryland, Michigan, Montana, New Jersey, Nevada, and Ohio — while litigation works its way through the courts. If you are outside those states, you can trade freely across Kalshi’s full market catalog. If you are inside one of them, financial and economic markets remain fully accessible.
A Brief Timeline of Prediction Markets in the US
The road from academic curiosity to mainstream regulated exchange spanned decades. Here is the short version of how we got here.
The Iowa Electronic Markets launched in 1988 as an academic research project at the University of Iowa, allowing small-stakes trading on political outcomes. Intrade operated from Ireland throughout the 2000s and attracted significant US volume on elections and world events before the CFTC forced it to stop serving American customers in 2012. PredictIt launched in 2014 under a no-action letter from the CFTC, limited to 5,000 traders per market. Polymarket launched in 2020 as a crypto-based global platform and became the largest prediction market in the world by volume during the 2024 US presidential election, though it operated without CFTC authorization for American users. Kalshi began its regulatory journey in 2018, received DCM designation in 2020, launched publicly in 2021, won its CFTC lawsuit in 2024, and added sports markets in early 2025. Polymarket re-entered the US market in late 2025 as a regulated entity. The industry today is a fast-moving, well-funded sector with multiple competing exchanges and a federal legal framework that continues to evolve.
Major Prediction Market Platforms
Several platforms currently serve US traders, each with a different fee structure, market catalog, and regulatory approach.
Kalshi is the dominant US platform by volume and the only one with full CFTC Designated Contract Market status. It offers the broadest US market catalog, covering sports, politics, economics, entertainment, weather, and more. Fees are formula-based, peaking at even-odds markets and declining toward extremes. Polymarket relaunched in the US in late 2025 with a simpler fee structure — a flat 0.10% taker fee — and has drawn traders who prioritize lower transaction costs. Robinhood and FanDuel both entered the space with their own prediction market products in 2025, leveraging existing user bases. PredictIt remains available in limited form for political markets, though it charges the highest fees in the industry. For international users and crypto-native traders, the global version of Polymarket continues to operate with near-zero fees on most markets.
What Markets Are Available
The range of events you can trade on prediction markets is broader than most people expect. The category breakdown varies by platform, but Kalshi — the largest US exchange — offers markets across all of the following areas.
Sports markets cover major professional leagues including the NFL, NBA, MLB, NHL, and college sports, as well as golf, tennis, MMA, and international competitions. You can trade on game outcomes, totals, player performance milestones, award winners, playoff brackets, and season-long futures. Political markets include elections at all levels — federal, state, and international — as well as legislative outcomes, policy decisions, and government appointments. Economic markets cover Federal Reserve interest rate decisions, inflation data, GDP reports, jobs numbers, and market index performance. The S&P 500 and Nasdaq-100 have their own dedicated markets with lower fees than standard event contracts. Entertainment markets cover film and television award shows, box office performance, reality competition outcomes, and streaming milestones. Weather and science markets offer contracts on temperature records, hurricane classifications, and major scientific announcements.
How Prediction Markets Differ from Sports Betting
If you come from a sports betting background, a few key differences are worth understanding before you start trading.
The biggest structural difference is that you are trading against other market participants, not against a house. A sportsbook bakes a margin into every line — the vig — and collects it regardless of outcome. On a prediction market, you are buying from and selling to other traders. The exchange collects a trading fee, but your expected-value calculation is fundamentally different from what you face at a sportsbook.
Prediction markets also allow you to exit a position before an event settles, similar to cashing out a bet. If you bought a contract at 40 cents and it is now trading at 70 cents, you can sell it and lock in your profit without waiting for resolution. This creates ongoing market dynamics — prices move continuously, and trading the price movement itself is a strategy, not just holding until settlement.
Finally, prediction markets cover events that sportsbooks do not touch at all. The Federal Reserve’s next rate decision, the next Supreme Court ruling, the Oscars, GDP growth — none of these are available at your typical sportsbook, but all of them are live on prediction markets right now.
Where to Go From Here
This section of Bettors Insider covers prediction markets from every angle. Our reviews team evaluates platforms on the criteria that matter most to active traders — liquidity, fees, market variety, mobile experience, and payout reliability. Our promotions team tracks welcome bonuses, promo codes, and new-user offers across every major platform and verifies them before we publish.
Whether you are crossing over from sports betting or getting into event-based trading for the first time, you will find everything you need here to make an informed decision.
Frequently Asked Questions
What exactly is a prediction market contract?
A prediction market contract is a yes-or-no financial instrument tied to a real-world outcome. Each contract is priced between one cent and 99 cents and pays out exactly one dollar if the event occurs — or nothing if it does not. The price at any moment represents the market’s collective probability estimate for that outcome. If a contract is trading at 60 cents, the market believes there is a 60% chance the event happens.
Can I exit a position before the event settles?
Yes. One of the key differences between prediction markets and sports betting is the ability to exit early. If you bought a contract at 35 cents and it has since moved to 65 cents based on new information, you can sell it in the open market and lock in your profit without waiting for the event to resolve. This makes active position management a core part of trading strategy.
How are prediction market trading fees calculated?
Fee structures vary by platform. Kalshi uses a formula-based fee that peaks around 7% at even-money markets (50 cents) and declines toward zero as contracts approach their limits at one cent or 99 cents — meaning high-conviction trades on heavy favorites or long shots cost less to execute. Polymarket charges a flat 0.10% taker fee. PredictIt charges 10% on profits and 5% on withdrawals, making it the most expensive option in the market.
Are prediction market winnings taxable?
Yes. The IRS treats prediction market profits as taxable income, and the legal structure of federally regulated exchanges like Kalshi means those gains are reportable the same way as other financial trading income. Kalshi issues 1099 forms for eligible accounts. If you are trading with any regularity, it is worth keeping clean records and consulting a tax professional familiar with financial derivatives.
What is the minimum amount needed to get started?
Kalshi allows deposits as low as $1 and contracts can be purchased for a single cent, though most active markets have prices between 10 cents and 90 cents per contract. As a practical matter, most traders start with $50–$200 to have enough capital to take meaningful positions across a few markets. There is no minimum account balance requirement to maintain an account.
Is my money protected if a prediction market platform shuts down?
On CFTC-regulated exchanges like Kalshi, customer funds are held separately from company operating funds — a standard requirement for registered Designated Contract Markets. This means if the platform were to close, your account balance would not be commingled with the company’s assets. That said, prediction markets are not covered by SIPC (which protects brokerage accounts) or FDIC (which covers bank deposits), so understanding the specific protections on any platform you use is worth doing before you deposit significant capital.
Explore More
Whether you are comparing platforms, hunting for a bonus, or learning how prediction markets work, these resources will point you in the right direction.
- Prediction Market Reviews — Read expert reviews of every major prediction market platform available in 2026.
- Prediction Market Promotions — Find the latest promo codes and sign-up bonuses across all prediction market platforms.
- Prediction Markets Guides — Browse beginner-friendly guides covering everything from how markets work to fees and legality.
- Best Prediction Market Apps 2026 — Compare every major prediction market app side by side in one place.
- How Prediction Markets Work — A clear explanation of the mechanics behind prediction markets and how prices are set.
- Are Prediction Markets Legal in the US? — Understand which platforms are available to US traders and the current regulatory landscape.
- Prediction Market Fees Explained — Learn how trading fees differ across platforms and how they affect your bottom line.
- How to Get Started on a Prediction Market — A step-by-step walkthrough for first-time prediction market traders.