Regulation and ethics

How prediction markets are regulated

The legal treatment of real money prediction markets depends on the product and jurisdiction. In the United States, the CFTC oversees designated contract markets such as Kalshi. In 2024, a federal court decision allowed Kalshi’s congressional-control contracts to trade while litigation continued; this was not a blanket ruling on every event contract or jurisdiction.

Some countries regulate prediction markets through sports betting licenses. Others use categories such as binary options or event contracts. Before choosing a platform, check the rules that apply to it and to traders where you live.

Rules against manipulation

A trader with enough money could try to move a market’s price to influence public opinion. Safeguards differ by jurisdiction and platform. Areas to check include:

• Rules against wash trading and other forms of price manipulation.
• Identity verification (KYC) and applicable anti-money-laundering checks.
• Financial resources and arrangements for settling winning contracts.
• Publication of trading information and reporting of positions to regulators; individual positions are not necessarily public.

Could a market encourage harm?

A market on a particular crime could give someone a financial incentive to commit it. Public-interest restrictions are meant to exclude markets on illegal or harmful outcomes, including those a participant could bring about by hurting someone.

Markets can also help people manage the financial effects of disasters. A farmer might use a weather contract to hedge against drought. A logistics company might use a geopolitical contract to hedge against a Suez Canal closure.

Using forecasts for public decisions

Market forecasts could inform government planning and business decisions. For example, a market indicating a 90% chance of a pandemic within six months could prompt a government to review its preparations and resources. This is one proposed use of decision markets in public policy and corporate planning.