What are prediction markets?
Before I take you through the legal status of prediction exchanges, let’s answer the fundamental question: what is a prediction market?
Prediction market sites, such as Kalshi or Robinhood, allow users to make picks across a range of markets, from entertainment to global news. Rather than the ‘house’ setting probabilities, as you’d find elsewhere, users trade contracts on the outcome of real world events, with the price of the contract changing as the real life situation develops. Each pick at a prediction market site takes a binary Yes/No format, with members backing one or the other. For example, “Will the next US President be a Republican? Yes or No.”
How does it work?
To take part, members buy either ‘Yes’ or ‘No’ contracts at a price of up to $1 each. Every individual winning contract is sold at a price of $1 so members then pocket any profit. For example, let’s say that you purchase 100 contracts stating that the price of Dogecoin will increase in the next week. Each contract costs $0.60 so the total cost to you is $60. If the end of the week rolls around and the price of Dogecoin has increased, each ‘Yes’ contract is settled at $1 each, totalling $100 and giving you $40 in profit.
Therefore, rather than a different model, sites such as Kalshi operate as a stock exchange for events. You won’t be going against the site with your pick, but trading with other members. Prediction markets facilitate the process, and receive a fee for doing so - have a look at my full manual on the costs of event trading for more detail on how this works. Crucially, this system means that prediction markets are classified as financial exchanges, placing them under the supervision of the Commodity Futures Trading Commission (CFTC). That means, gambling laws do not apply to these sites.
Pros and cons of prediction markets
Thinking about trying prediction markets? They’re an easy and fun way to trade on future events with lots of categories to choose from. But there are a few things to keep in mind. Here’s a quick look at the pros and cons.
Pros
- Easy for beginners
- Broad choice of categories
- Simple to use
- Available everywhere
Cons
- Future restrictions may apply
Categories at prediction markets
One of the main reasons folks love prediction markets is the extreme variety of markets. In the table below, I’ve gone through some of the most popular categories at prediction market sites, and sample picks:
| Category | Example picks - Yes/No |
|---|---|
| Politics | Will X be the Democratic Presidential nominee? |
| Entertainment | Will X win the Oscar for ‘Best Picture’? |
| Sport | Will the New England Patriots win the next Super Bowl? |
| Crypto | Will the value of Bitcoin increase in a specific month? |
| Technology | Will X be the largest company this month? |
| Culture | Will X win the next Eurovision Song Contest? |
| Weather | Will the highest temperature in London on a set date be above a set marker? |
| Mentions | Will a public figure be mentioned in an Oscar speech? |
Are prediction markets similar to sports?
Prediction markets vs sports work in different ways. Markets like Kalshi let you make simple Yes or No options, which can be easier for newcomers. You don’t need deep sports knowledge, making prediction markets a great alternative for fans who want straightforward picks.
Are prediction markets legal in the US?
As I’ve mentioned above, sites such as Robinhood and Polymarket define themselves as financial exchanges. This puts them in the same category as option traders and means they are accessible in all states.
However, there’s a significant group of regulators, industry professionals and lawmakers who argue that the Yes/No picks members make at these sites can and should be understood as gambling.
Recent developments
By February 2026, more than 20 federal lawsuits and legal challenges had been filed by states against prediction markets across the country, including Arizona, Connecticut, Maryland, Nevada and Tennessee. These cover cease-and-desist requests directed at specific brands, temporary restraining orders and federal court rulings.
Critically, these legal challenges revolve around the question of whether brands such as Kalshi should have a status as financial exchanges, regulated federally, or should be considered as real money gambling operations subject to state-wide regulation and requiring a license. The legal situation was further complicated when the Chair of the US CFTC recently announced that it would be filing a challenge to retain jurisdiction and oversight of prediction markets.
The most important takeaway here is that brands such as Kalshi and Polymarket are totally legal and allowed to operate according to a financial exchange model. It’s important to note that the legal situation is changeable so always make sure to check the terms and conditions of any site and your local laws before making a new account.
You’ll find links to all of the best brands here, and extensive guides on choosing between them. There are also detailed breakdowns of everything you need to get started, from a look at how to read market prices to the best picks for specific markets, such as sports and crypto.
Who can join prediction markets?
Prediction market exchanges are strictly for those aged 18 and over. It’s possible that states may set their own age limits for accessing sites like Polymarket in the future, so, again, it’s vital to check before you join.
To join and use a prediction market, players must complete Know Your Customer (KYC) verification by uploading a copy of an ID document such as a driver’s license or passport. This guarantees that you meet the minimum age requirement.
Are prediction market winnings subject to taxes?
At the time of writing, the Internal Revenue Service (IRS) has released no formal guidance on how winnings from prediction markets should be taxed, or included on your annual return. It’s expected that guidance will be released in late 2026 or 2027 but this hasn’t been officially clarified. This could mean that amendments have to be made to any tax returns you make before that time.
What could change for prediction markets in the future?
It’s possible that, going forward, prediction exchanges may be required to comply with a more detailed regulatory framework which includes safety protocols, such as loss limits. This is already in place at some sites so it shouldn’t impact player’s ability to sign up.
A more complex legal framework could also include potential restrictions on the markets offered at sites such as Kalshi and Polymarket. This is most likely to impact sports markets, as this would arguably clearly differentiate prediction markets from traditional online brands. At the moment, it’s not clear if this would impact sports markets as a whole or only some event contracts, like picks on certain players. Politics may also become a more limited market.
Final summary - stick with me to make sure you’re choosing legal prediction markets in the US
Prediction markets have surged in popularity in the last year and offer the chance to trade straightforward Yes or No contracts on an extremely varied choice of markets. But, are prediction markets legal?
At the moment, prediction markets are legal in the US for those aged at least 18 but the situation is subject to ongoing change. As of writing, prediction markets fall under the regulatory oversight of the CTFC, which means that they’re available in all US states, including areas where sports gambling isn’t permitted.
Several states have recently made legal challenges to restrict prediction markets in their regions. Therefore, it’s vital to check the Ts and Cs of any site before registering to make sure that you’re only accessing safe and secure brands. You’ll only ever find links to reputable prediction markets on the banners on this page so it’s a great place to start when you’re choosing between brands.
