Are Prediction Markets Legal?

Yes, prediction markets are legal in the U.S., but their availability depends on both state and federal regulations. Unlike legal sportsbooks, prediction market apps are regulated federally by the Commodity Exchange Act (ECA) under the Commodity Futures Trading Commission (CFTC). This allows prediction markets to offer event contracts for the outcomes of sports, politics, and more options in states without legal sports betting, leading some users to ask questions like what are they + are they legal?

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Law Changes Surrounding Prediction Markets

As prediction market apps continue to rise in popularity, so do the different law changes surrounding these markets. While some prediction markets are legal under federal regulations, individual states can restrict residents from accessing them. There are a handful of states with legal sports betting that have issued cease-and-desist letters to Kalshi and other prediction markets. Those states include Nevada, Tennessee, Arizona, Ohio, Montana, Maryland, New Jersey, Illinois, Connecticut, and others.

Everything changed since a federal court in Nevada ruled that sports event contracts provided by prediction markets are gambling. This declaration nullifies prediction market apps’ federal protection from state restrictions.

How Do Prediction Market Apps Work?

Prediction market apps work by allowing users to buy and sell shares of an outcome for future events, such as a football game or the presidential election. Put simply, people bet on what they think will happen. These predictions come with a price ranging from $0 to $1, which reflects how likely people collectively think the outcome is. Demand increases contract price, while fading confidence levels decrease the price, operating similarly to stocks.

Prediction Markets Vs Sportsbooks

The main distinction between prediction markets and sportsbooks is that prediction market apps use peer-to-peer trading and market demand to determine the pricing of an outcome, while sportsbooks have fixed odds that are set by the sportsbook. While legal sports betting puts the bettor against the house, predictions consist of the trading of contracts between players.

What Prediction Markets Can I Use In The USA?

There are a handful of different prediction sites you can use in the USA. Each of these prediction market apps offer different features and vary in user experience, regulatory status, and market liquidity. Below are some of the top prediction markets and what they have to offer.

Kalshi

Kalshi is one of the most well-known prediction markets out there. The biggest advantage to using Kalshi is that they offer federally-regulated contracts from oversight by the CFTC. This extra level of regulatory security from a US-based prediction market gives it an edge over the competition. However, studies show Kalshi sports markets are overpriced compared to US online sportsbooks.

Polymarket

Polymarket is known globally as the top crypto prediction market for politics, entertainment, and cultural event outcomes. Their massive market scale with presence in many foreign countries make trading easy at this platform. Unlike Kalshi, Polymarket operates in a legal gray area and isn’t federally regulated. This led them to be blocked in Nevada from offering event contracts in the state.

Underdog

Known for their daily fantasy sports offerings, Underdog has recently dove into the prediction market world with their own offerings. Underdog delivers their prediction-style markets with the appearance of DFS/sports betting, making it easy for users to participate in outcome trading. While they’re still new to the scene, Underdog is so confident in their prediction markets that they essentially forfeited their Arizona license for legal sports betting to pursue predictions.

Fanatics Markets

Similarly to Underdog, Fanatics Markets is still developing their prediction market platform. They cater their trade event contracts to sports bettors, providing a simple interface that appeals more to the casual bettor than hardcore day trader. This angle casts a wider net for their already existing sports betting audience, but may not be the best choice for diehard contract traders.

Crypto.com

Crypto.com stakes their claim as an all-in-one trading platform as a major crypto platform that also offers sports betting with an integrated prediction market. This style makes Crypto.com the perfect prediction site for those already trading crypto or stocks, offering a seamless transition for those that are new to contract-based markets. The only downside to Crypto.com’s prediction markets is the depth, since this platform isn’t dedicated solely to predictions like other apps.

DraftKings Predict

DraftKings Predict is a regulated expansion of the popular sportsbook, combining their sports offerings with contract-based trading. Their involvement in prediction markets keeps DraftKings from losing customers to Kalshi and other dedicated prediction markets, while also getting an edge on competing sportsbooks. DraftKings Predict is backed with the same reputable DK technology as their sports betting and fantasy offerings, making for a reliable prediction trading platform.

Robinhood

Robinhood is introducing event-based contracts to their massive user base, taking this brand beyond traditional stocks. Since their users already are familiar with how buying and selling contracts operate within the app, the transition into a prediction market app should be seamless. Like Crypto.com, the main downside to Robinhood is the market availability since they must convert existing users.

FanDuel Predicts

FanDuel Predicts is FanDuel’s entrance into the prediction markets world, a necessary addition considering their competition. The familiar experience for FanDuel users and presence of a trustworthy brand make for an optimistic transition. Their main obstacle is state regulation and market selection compared to prediction-dedicated sites. The launch of FanDuel Predicts cost FanDuel Sportsbook their licensing in Nevada after the state deemed prediction markets “unlawful”.