How prediction markets work
On prediction market platforms, traders buy or sell “event contracts” — typically structured as yes-or-no wagers priced between $0 and $1 — that reflect the collective probability traders assign to a given outcome. The more likely traders consider an event, the higher the price of a “yes” contract rises. Users can cash out early to lock in incremental gains or to limit losses as odds shift.
Koleman Strumpf, an economics professor at Wake Forest University, told AP there is analytical value in monitoring these platforms for potential signals, pointing to their track record with some past election outcomes, including the 2024 presidential race. Still, prediction markets are never a “crystal ball” and can be wrong, he said.
The identity of who is trading is often difficult to establish, AP reported. While platform operators collect personal information to verify identities and process payments, most users trade under anonymous pseudonyms.
A light regulatory touch
Because prediction markets sell event contracts rather than traditional wagers, they fall under the jurisdiction of the Commodity Futures Trading Commission rather than state gambling regulators — a structure that allows them to operate in states where sports betting remains prohibited.
“It’s a huge loophole,” Karl Lockhart, an assistant professor of law at DePaul University, told AP. “You just have to comply with one set of regulations, rather than (rules from) each state around the country.”
Federal law bars event contracts related to gaming, war, terrorism, and assassinations, Melinda Roth, a visiting associate professor at Washington and Lee University’s School of Law, told AP — a constraint that may put some existing contracts on legally uncertain ground. Some users may still be able to access certain contracts while traveling abroad or by connecting through VPNs, she said.
The CFTC faces its own institutional constraints. The agency is currently operating with only one of five commissioner slots filled, AP reported, amid staff reductions and a wave of leadership departures under Trump’s second term. The CFTC did not respond to AP’s request for comment.
Kalshi CEO Tarek Mansour publicly supported Torres’s bill, writing on LinkedIn that insider trading has always been prohibited on his platform but that more needs to be done to crack down on unregulated prediction markets, according to AP.
A crowded and expanding industry
Polymarket was previously barred from operating in the U.S. following a 2022 settlement with the CFTC during the Biden administration, AP reported. The company announced its return after receiving CFTC clearance late last year under Trump’s second term; American-based users can currently join a platform waitlist.
Kalshi, Polymarket’s top competitor, has been a federally regulated exchange since 2020, AP reported. It currently offers event contracts on elections and sports nationwide. Sports betting giants DraftKings and FanDuel both launched prediction market platforms last month, according to AP. Online broker Robinhood is also expanding similar offerings. Trump’s social media platform Truth Social has announced a prediction market through a partnership with Crypto.com.
Donald Trump Jr. holds advisory roles at both Polymarket and Kalshi, AP reported.
A growing number of states and tribal governments are suing to stop sports wagering through event contracts, and lawyers told AP they expect that litigation to eventually reach the U.S. Supreme Court. Additional regulatory action from the CFTC under the current administration is viewed as unlikely, AP reported.
“The train has left the station on these event contracts, they’re not going away,” Roth said.