Prediction markets have been grabbing plenty of headlines of late. They allow you to enter contracts and trade on the potential outcome of numerous events in sports, politics, and many other scenarios, based on a yes/no outcome.
You may want to know whether prediction markets are legal or not? Currently, they are legal in all 50 states, although every day brings new developments we’ll keep you apprised of.
We’ll look into their legality and how they work here. They differ from sports betting in that you make predictions, not bets, trading event contracts on various topics, which can include sports outcomes as well.
Yes – at least at present. You might wonder why you can partake in prediction markets in the US when you may live in a state that doesn’t allow sports betting, since this is one of the most popular topics people look at in prediction markets. In truth, the two are very different. We’ve provided a table here that explains some of the key differences and terminology. You can also review our guide, what are prediction markets, to get further detailed insights before you try it.
| Sports Betting | Prediction Markets |
|---|---|
| Requires you to place a bet | Requires you to make a prediction on whether something is going to happen or not |
| You make individual bets on your favorite sports | A prediction market works in pairs, based on a yes or no outcome |
| No shares, trades, or contracts involved – only simple sports betting | You’ll buy shares in the outcome you believe is most likely to happen |
| You can place bets on a scoreline, outcome, or range of other possibilities | You will always choose shares in a yes or no outcome |
In short, every prediction market requires a yes or no prediction, so there will always be a winner and a loser. If you are a winner, you will receive $1 per share that you bought via the event contract to start with.
As you may know, individual US states decide whether to allow standard sports betting, and if so, they will license and regulate it in that state.
In contrast, prediction markets are overseen by a Federal agency called the CFTC – the Commodity Futures Trading Commission. That’s because they involve financial trading rather than sports betting.
Since Federal laws apply throughout all 50 US states, prediction market websites are currently fine to use since the CFTC allows them to operate, so Kalshi is legal along with a handful of other prediction market sites.
We’re watching the situation closely, so if anything changes, you’ll know about it here first. For instance, the current US government seems far more accepting of the sites than the previous one.
Of course, this may change in the future, if we see another change in government at some point.
When you use one of the best prediction market sites online, you will select an event contract based on a future scenario. Every prediction market you see is based on two possibilities – yes or no. You’ll see that each market is based on a question. If we compare this to sports betting, we might bet on who will win the next Super Bowl from the range of available teams in the running, i.e., “Who will win the next Super Bowl?” The answer can then be the name of any of the teams taking part.
If we focus on prediction markets, we will see a different question that requires a yes or no answer, i.e., “Will the Philadelphia Eagles win the next Super Bowl?” We would then participate in the market with a yes or no answer and buy trades accordingly. We would need to be correct to win a payout, just as we would with sports betting – but that’s where the similarities end.
If you correctly predict either yes or no to match the outcome of a specific event contract, you will receive a payout.
However, while it sounds simple, you cannot always expect to successfully predict what might happen.
Never trade with more money than you can afford to lose. If you’re wrong, you won’t get the money back that you purchased your event contracts with.
Yes, in some cases you will come across US states that haven’t legalized sports betting, yet residents there can still take part in prediction markets on any of the federally regulated websites or apps that provide this service.
As such, it offers another way to enjoy sports and make predictions based on your preferred teams and events.
Essentially, prediction markets involve trading contracts, based on the probability of certain events happening or not. This means they fall under trading, regulated by the CFTC, a Federal agency encompassing the entire USA. So, their stance covers the entire country rather than any specific state.
For now, you can legally partake in prediction markets across the US. The situation is subject to change, however, so it would be prudent to keep track of what is happening – particularly in your home state.
We know that people living in US states that have not legalized sports betting might view prediction markets as a possible alternative.
In some ways they are easier to understand, given the simple yes-no format and questions. You do not necessarily need in-depth sporting knowledge – or indeed knowledge of any particular prediction market you care to participate in.
As always, though, you must realize that prediction markets are an entirely different beast compared to sports betting – and indeed other forms of betting.
We recommend reading some of our detailed site reviews and guides on prediction markets here first if you are considering getting involved.
We will provide further information on any developments on the legality of US-based prediction markets as and when they occur, just like what we found researching if Polymarket is legal.
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