Updated 24 October 2026
Quick answer: Prediction markets are platforms where people buy and sell contracts on whether something will happen: an election result, an interest-rate decision, a football match, tomorrow's weather. Each contract pays $1 if the event happens and nothing if it does not, so its price, between 1 and 99 cents, works as the crowd's estimate of the probability. The two biggest, Kalshi and Polymarket, traded a combined total of about $53 billion in July 2026 alone, driven by the football World Cup, and sports now make up about four-fifths of Kalshi's volume. Are they legal? In the United States, both operate under the federal Commodity Futures Trading Commission, but several states argue that sports contracts are illegal gambling, and federal appeals courts have split, so the question may reach the Supreme Court. Outside the US, Polymarket is blocked in more than 30 countries, including the UK, France, Germany, Australia and Singapore, and India's 2025 law bans real-money online games. Treat prediction markets as a form of betting, not investing.
Five years ago, prediction markets were a curiosity used by economists, political junkies and a handful of crypto traders. In 2026 they are advertised during football matches, built into trading apps used by millions and quoted by news channels alongside opinion polls. Their supporters say they are the most accurate forecasting tool ever invented. Their critics say they are sports betting with a financial costume.
Both can be partly true. This guide explains how prediction markets work, why they have grown so fast, what the law says in the United States and elsewhere, how much traders actually win and lose, and what to think about before putting any money in.
How a Prediction Market Works
A prediction market lists questions with clear yes-or-no answers that will be settled by a specific date and a named source. "Will the Federal Reserve raise rates in December?" "Will Team A win the final?" "Will New York's high temperature exceed 30°C on Friday?"
For each question, you can buy YES or NO contracts. A YES contract pays $1 if the answer turns out to be yes and $0 if not; a NO contract does the opposite. Prices move between 1 and 99 cents as traders buy and sell, and the price of YES plus the price of NO is always about $1.
If YES trades at 62 cents, the market as a whole is saying there is roughly a 62% chance the event happens. Buy at 62 cents and you make 38 cents per contract if you are right, and lose your 62 cents if you are wrong. You do not have to wait for the result: you can sell your contracts at the current price at any time, locking in a profit or cutting a loss.
The platform does not bet against you, as a traditional bookmaker does. It matches buyers and sellers and earns money from fees on trades, much like a stock exchange.
Why People Think They Work
The case for prediction markets rests on an old idea in economics: prices aggregate information. When thousands of people with money at stake trade on a question, those who know more, or think more carefully, tend to push the price towards the right answer, and those who are wrong lose money and eventually leave. The result can be a better forecast than any single expert or poll.
There is some evidence for this. Studies of earlier markets, such as the University of Iowa's small academic election market, found their forecasts were often at least as accurate as polls, especially close to the event. Prediction markets reacted quickly in the 2024 US election and were frequently quoted as a real-time read on the race. Companies have used internal prediction markets to forecast product launches and sales.
But markets can also be wrong, sometimes badly. Thinly traded questions can be moved by a single large trader. Enthusiasm can bias prices: fans overpay for their own team. And on many questions, the crowd simply does not know very much.
A Short History of Betting on the Future
Prediction markets are newer as an industry than as an idea. Betting on elections was once an open and enormous business in the United States: from the late nineteenth century until the 1940s, election wagers were traded on the New York curb market and reported daily in newspapers, and economists Paul Rhode and Koleman Strumpf have shown that those prices predicted results remarkably well. Laws against gambling and the rise of scientific opinion polls pushed the trade underground.
The modern revival began in 1988 with the Iowa Electronic Markets, a small academic exchange run by the University of Iowa that allowed trades of up to $500 on elections, under a regulatory exemption for research. In the 2000s, Intrade, based in Ireland, became the best-known public prediction market before it closed in 2013 amid financial problems and US regulatory action. PredictIt, a research project run from New Zealand, offered small-stakes political markets in the US from 2014 under a similar exemption.
Blockchain technology made it possible to build markets that operate across borders without a traditional exchange. Polymarket launched in 2020 on that model. Kalshi took the opposite route, spending years obtaining approval from the CFTC as a fully regulated exchange, which it received in 2020. Its 2024 court victory over election contracts, and the CFTC's change of stance under a new administration in 2025, opened the door to the boom that followed.
How Prediction Market Prices Get Used
Even people who never trade are increasingly exposed to prediction market prices.
- News coverage: television channels and news sites now quote market odds on elections and policy decisions alongside polls, sometimes through formal data partnerships with the platforms.
- Economic forecasting: markets on central bank decisions, inflation data and jobs reports offer a running, public estimate of what traders expect, similar to the signals investors have long drawn from futures markets.
- Hedging: a business whose profits depend on an event, from a ski resort worried about a warm winter to a company exposed to a tariff decision, can in principle buy contracts that pay out if the bad outcome happens.
- Research: economists and political scientists use prediction market prices to study how quickly information spreads and how events change expectations.
These uses depend on the markets being deep and honest. When trading is thin or concentrated among a few large accounts, the prices say more about those traders than about the world.
How Big Prediction Markets Have Become
Growth in 2025 and 2026 has been explosive:
- Kalshi, a US exchange regulated by the CFTC, overtook Polymarket in monthly volume in late 2025 and reported a record of about $14.8 billion in April 2026.
- Combined volume on Kalshi and Polymarket reached about $53 billion in July 2026, up from about $26 billion in May, according to an analysis by the Pew Research Center, as the football World Cup in North America drew huge betting interest. Volume fell back after the tournament; one estimate by Macquarie put total prediction market volume at about $20 billion in September.
- Sports dominate. Since July 2024, sports have accounted for about 80% of Kalshi's trading volume and about 39% of Polymarket's, according to Pew. Politics, economics, weather, entertainment and crypto prices make up the rest.
- Big money is involved. Intercontinental Exchange, owner of the New York Stock Exchange, agreed to invest up to $2 billion in Polymarket in 2025, and brokerages including Robinhood have added prediction markets for their customers.
One caution about the numbers: Kalshi reports "notional" volume, counting every contract at its $1 face value even if it traded for a few cents, so headline volumes overstate the cash actually changing hands.
Kalshi and Polymarket: The Main Differences
- Regulation: Kalshi is a designated contract market regulated by the CFTC, the agency that oversees futures. Polymarket began as an offshore crypto platform, was fined by the CFTC in 2022 for operating without registration and barred US users, then returned to the US market in late 2025 through a regulated exchange it acquired.
- Money: Kalshi works in US dollars through bank transfers and cards. Polymarket's international platform uses the stablecoin USDC on a blockchain; its US platform works more like a traditional exchange.
- Markets: both cover sports, politics, economics and current events; Kalshi's volume is more concentrated in sports.
- Access: both require identity verification and users aged 18 or over in the US; availability varies by state, and Polymarket's international site is blocked in many countries.
Are Prediction Markets Legal in the United States?
This is the question at the heart of the industry, and in October 2026 it is not settled.
Kalshi's position is that its event contracts are financial derivatives, regulated nationally by the CFTC under federal commodities law, so states cannot apply their gambling laws to them. In 2024 it won a court case allowing it to list contracts on US elections, and the CFTC dropped its appeal in May 2025. Under its current leadership, the CFTC has sided firmly with the platforms, suing several states, including Illinois, Arizona, New York and, in September 2026, Kentucky, to stop them from acting against regulated prediction markets.
Many states see it differently. To them, a contract on the result of a football game is a sports bet, whatever it is called, and sports betting is licensed and taxed by states. State regulators and Native American tribes, who run casinos and sportsbooks under state compacts, have filed dozens of lawsuits. Kalshi alone has been involved in more than 20 federal cases since 2025.
The courts are divided:
- The federal Third Circuit appeals court ruled 2-1 that New Jersey cannot enforce its gambling laws against Kalshi.
- The Ninth Circuit ruled that Nevada can enforce its gambling laws, and a Nevada state court temporarily blocked Kalshi's sports contracts in the state in September 2026.
- The Sixth Circuit found that sports event contracts are essentially sports bets subject to Tennessee's wagering laws.
That "circuit split" is exactly the kind of disagreement the Supreme Court exists to resolve, and New Jersey has asked it to hear the case. The CFTC's chairman has said the agency would abide by a Supreme Court ruling, which many lawyers expect as soon as 2027. Until then, whether you can trade a given contract depends on where you live, and that can change quickly.
Prediction Markets Around the World
- United Kingdom: betting is legal but tightly licensed by the Gambling Commission. Polymarket is among the platforms that block UK users; licensed betting exchanges such as Betfair, which have offered similar person-to-person markets for decades, are the legal alternative.
- European Union: France's gambling regulator ordered internet providers to block Polymarket, calling it an illegal game of chance. Portugal and Hungary banned it in January 2026, Spain imposed a temporary ban pending review, and Germany, Italy, Belgium and Poland also restrict access.
- Asia-Pacific: Singapore, Thailand, Taiwan and Australia are among the places where Polymarket is restricted.
- Latin America: an Argentine court ordered Polymarket blocked in March 2026, making it roughly the 34th country to restrict it.
- India: the Promotion and Regulation of Online Gaming Act, passed in August 2025, bans online games played for money, along with their advertising and payment processing. Prediction markets that take real-money stakes fall squarely within that ban, and using offshore platforms carries legal and financial risk.
The common thread is that most countries regulate prediction markets as gambling, not as investment products, and political betting in particular is often prohibited.
Investing or Gambling?
The industry prefers to talk about "trading" and "forecasting". For individual users, the distinction that matters is economic, not legal.
Investing in shares or bonds is a positive-sum activity over the long run: companies produce profits and governments pay interest, so investors as a group earn a return. Prediction markets are zero-sum before fees: every dollar one trader wins, another loses. After fees, they are negative-sum. That makes them economically much closer to betting than to investing, however they are regulated.
That does not make them worthless. Some people trade them for entertainment, the way others bet on sports. Some use them as a hedge: a farmer worried about drought, or a business exposed to an interest-rate decision. And their prices are a useful public source of information about what the crowd expects. But anyone putting money in should do so with money they are prepared to lose, as they would at a casino.
Prediction market trade calculator
See what a trade costs, what it pays, and whether it makes sense given your own estimate of the chances.
Contracts settle at $1 or $0. Expected result = your probability × profit − (1 − your probability) × loss. A positive number only means the trade is good if your estimate is better than the market's, which is hard to achieve consistently. Fee structures differ by platform.
Do Traders Make Money?
Some do. Most do not. Because markets are zero-sum before fees, the gains of skilled and well-informed traders come directly from the losses of everyone else. Professional trading firms, quantitative funds and people with genuine expertise or faster information have moved into the largest markets, especially sports and economics, and they are difficult opponents.
The calculator above shows why it is hard to win consistently. To profit, you need to be more accurate than a market price that already reflects the views of thousands of other traders, by enough to cover the fees. Being right occasionally is easy; being right more often than the market, over hundreds of trades, is not.
The Risks to Know
- Losing money: the price you pay for a contract can go to zero. Many small trades add up.
- Addiction: sports contracts available around the clock, on a phone, with instant settlement, have the same features that make other forms of betting addictive. Several US states and gambling-addiction charities have raised this concern.
- Legal uncertainty: markets available today may be withdrawn in your state or country tomorrow, and using platforms where they are banned can breach local law.
- Manipulation and insider trading: thinly traded markets can be moved by a large trader, and people with inside knowledge of an outcome may trade on it. CNBC reported in September 2026 that some trading volumes had raised questions among researchers about how genuine the activity is.
- Resolution disputes: a question that seems clear can turn out to be ambiguous. Read exactly how each market will be settled and by whom.
- Platform and crypto risk: on blockchain-based platforms, you depend on the stablecoin, the smart contracts and your own wallet security.
- Tax: winnings are generally taxable. In the US, the tax treatment of event contracts is not fully settled; keep records of every trade.
If You Decide to Try One
- Check it is legal where you live. Use only platforms licensed in your jurisdiction.
- Set a strict budget, as you would for any entertainment spending, and never borrow to trade.
- Start small and read the settlement rules of each market before trading.
- Avoid markets on sports you follow passionately, where your judgement is least reliable.
- Use the platform's limits. Many offer deposit limits and self-exclusion tools; use them.
- Keep it separate from your savings. Prediction markets are not a substitute for investing for retirement or other goals.
Frequently Asked Questions
How do prediction markets make money?
Mostly from fees on each trade, and in some cases from interest on customer balances. Unlike bookmakers, they do not set odds or bet against their customers; they match buyers and sellers.
Are Kalshi and Polymarket legal?
In the United States, Kalshi is regulated by the CFTC and Polymarket operates through a regulated US exchange, but several states dispute their right to offer sports contracts, and the courts are split. Outside the US, Polymarket is blocked in more than 30 countries. Check the rules where you live.
Are prediction markets more accurate than polls?
Sometimes. Large, active markets often forecast well, especially close to the event, because traders with money at stake react quickly to new information. Small markets can be inaccurate or manipulated, and markets have made notable misses.
Is trading on prediction markets gambling?
Economically, it is much closer to gambling than to investing, because every win is matched by someone else's loss, and fees make the total slightly negative. Many countries regulate it as gambling.
Can I use prediction markets in India?
India's Promotion and Regulation of Online Gaming Act of 2025 bans online money games, which covers real-money prediction markets. Using offshore platforms is legally risky and may expose you to losses with no recourse.
What is the difference between a prediction market and a sportsbook?
A sportsbook sets the odds and takes the other side of your bet, profiting from a built-in margin. A prediction market matches you with other traders, lets you sell your position before the event, and charges fees. For the person betting, the economics are similar: on average, the house or the fees win.
Can prediction markets be manipulated?
Yes, especially small ones. A trader with enough money can move the price of a thinly traded contract, and people with inside information may trade on it. Large, liquid markets are harder to move, and regulated exchanges are required to monitor for manipulation.
Do I pay tax on prediction market winnings?
Generally, yes. The exact treatment depends on your country and, in the US, is still being clarified for event contracts. Keep a record of every trade and check with a tax adviser if your winnings are significant.
Final Thoughts
Prediction markets are one of the most interesting financial inventions of the decade: a way to put a price on almost any uncertain event, with prices that often tell us something useful about the future. They are also, for most users, a form of betting that has grown at astonishing speed, largely on the back of sports, and is now the subject of a legal fight that could reach the US Supreme Court.
Use their prices as information if you find them useful. If you trade, treat it as entertainment with a budget, not as a way to build wealth. Your savings will do far better in an emergency fund, a pension and a diversified portfolio than in contracts that, after fees, most people lose on.
Sources
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Volume and legal details are as reported in October 2026 by Pew Research Center, CNBC, Front Office Sports and regulators, and change quickly. This article is for general information and isn't legal or financial advice.
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