Prediction Markets: Growth, Regulation and the Impact on the Trading Industry

What a prediction market actually trades

A prediction market lists a question with a yes or no answer and lets people buy either side. A yes contract on an event pays one dollar if the event happens and nothing if it does not, so a contract trading at 62 cents implies that the market puts the probability at 62 percent. The buyer of no receives the other 38 cents of the dollar. The exchange holds the full dollar as collateral, so no leverage and no counterparty credit are involved, and the contract settles on a published resolution source once the outcome is known.

Economically this is a binary option, the product that the European Securities and Markets Authority banned for retail clients in July 2018 and that ASIC banned in Australia in May 2021 after finding that around 80 percent of retail clients lost money on it. The differences that regulators in the United States have found decisive are that a prediction market contract is traded on a central limit order book between participants rather than sold by a broker that takes the other side, that the exchange has no interest in the outcome, and that the contracts are fully collateralised. Those are real differences in market structure. Whether they change the outcome for the retail participant is one of the questions this paper cannot yet answer with data.

From academic tool to retail product

Prediction markets have a long history in economics. The Iowa Electronic Markets have run real-money election markets under a CFTC no-action letter since 1988, and the academic literature on their forecasting accuracy is extensive. Intrade, based in Ireland, ran popular markets on political events until it was forced to stop serving Americans in 2012 after a CFTC action, and PredictIt operated under a no-action letter from 2014 until the CFTC tried to withdraw it in 2022, a dispute that ran through the courts for three years.

The modern retail market began with two firms. Kalshi, founded in 2018, took the slow road of registering with the CFTC as a designated contract market, which it achieved in 2020, and then fought the Commission in court over whether it could list contracts on which party would control Congress. In September 2024 a federal court ruled in Kalshi's favour and the D.C. Circuit declined to stay the ruling, so Kalshi listed election contracts weeks before the 2024 presidential election. Polymarket, founded in 2020, took the fast road: it runs on a blockchain, settles in a dollar stablecoin, and after a 2022 CFTC settlement for operating an unregistered facility it blocked US users and grew as an offshore market for everyone else, with more than three billion dollars traded on the 2024 election alone according to its public order book.

The election made the product famous. Polymarket's odds were quoted nightly on television, its accuracy relative to polls became a story in itself, and the volume figures it published were larger than any prediction market had ever seen. Kalshi's regulated status then let it do what Polymarket could not: sign distribution deals with mainstream US brokers.

How volume grew and where it comes from

The numbers are public because the exchanges publish them and because the CFTC-registered venues report to the Commission. Kalshi reported cumulative volume in the hundreds of millions of dollars before the 2024 election and in the billions within months after it. By mid 2025 weekly volumes across Kalshi and Polymarket were routinely in the hundreds of millions of dollars, and trade press estimates of the annualised total ran into the tens of billions.

The composition changed as the product matured. Politics dominated in 2024. Sport dominated in 2025: Kalshi's sports contracts, launched in January 2025, quickly became its largest category, and Polymarket's football, basketball and other sport markets did the same. Economic data releases, central bank decisions, weather, awards and cultural events make up the rest. That shift matters because it moved the product from something that looked like a political forecast into something that looked like a sportsbook, which is the framing state gambling regulators used when they objected.

Distribution drove the growth as much as the product did. Robinhood added Kalshi event contracts in 2025 and reported that they became one of its fastest-growing products. Crypto.com listed sports event contracts through its own CFTC-registered derivatives arm. Interactive Brokers launched ForecastEx, its own registered exchange for event contracts, in 2024. Each of those firms has millions of existing retail accounts, and putting a yes or no contract beside stocks and options in an app the customer already used is a far cheaper acquisition than any forex broker's affiliate programme.

The regulatory picture

The product's legal status is the most unsettled part of the story and differs sharply by country.

• United States, federal: event contracts are commodity derivatives under the Commodity Exchange Act and may be listed on a CFTC-registered exchange unless they involve terrorism, assassination, war, gaming or an activity that is unlawful, and are contrary to the public interest. The 2024 Kalshi ruling held that elections are not gaming. Under the leadership installed in 2025 the CFTC withdrew a proposed rule that would have restricted event contracts and signalled that it would not stand in the way of sport contracts.
• United States, states: several state gambling regulators, including those of Nevada, New Jersey, Maryland, Ohio and Illinois, sent cease and desist letters to Kalshi and to Robinhood over sports contracts in 2025, arguing that they are sports betting under state law. Kalshi sued, arguing federal preemption, and won preliminary injunctions in some courts and lost in others. The question of whether a CFTC-registered contract can be regulated as gambling by a state was still working through the appeals courts as this paper was written.
• United Kingdom: the Gambling Commission treats betting on events as gambling requiring a licence, and the FCA's ban on retail binary options covers contracts that are financial instruments. Prediction markets have not launched a UK-facing product, and Polymarket blocks UK users under its terms.
• European Union: ESMA's binary option ban remains in force through national law, and an event contract on a financial reference such as an interest rate decision would fall within it if offered to retail clients. Contracts on non-financial events fall to national gambling regulators. No EU-licensed prediction market exists.
• Australia: ASIC's binary option ban runs to 2031 and covers contracts with a financial reference; event betting is a matter for state gambling licences. Polymarket blocks Australian users.
• Asia: Singapore's Ministry of Home Affairs blocked Polymarket in January 2025 under its gambling laws. Most other regulators in the region have not issued specific guidance, and access is through offshore crypto rails.
• Blockchain venues: Polymarket, which raised capital at a multi-billion dollar valuation in 2025 and acquired a CFTC-licensed exchange, QCEX, to re-enter the US market, is the largest, with a number of smaller decentralised venues behind it. Their status outside the US is the same as that of any offshore crypto derivatives platform: available in practice, unlicensed in law.

The pattern resembles the history of retail forex a decade earlier: a product that regulators in one large market permit under a derivatives framework, that regulators in others treat as gambling or ban, and that is available everywhere through offshore rails whatever the law says. The forex industry's experience suggests the product will keep growing where it is legal, that offshore access will persist where it is not, and that the regulatory response will be leverage limits, disclosure and marketing rules rather than prohibition, at least in the United States.

What it means for forex and CFD brokers

Brokers should care for four reasons.

The first is competition for the speculative retail dollar. A yes or no contract on whether the Federal Reserve cuts rates is a simpler product than a leveraged position in EUR/USD that expresses the same view, and a retail client who has a hundred dollars to risk on a central bank decision can now do so without a margin call, a swap charge or a stop-out. Kalshi and Polymarket both list contracts on the economic data and central bank decisions that are the staple of forex news trading.

The second is that the product is a binary option by another name, and brokers outside the United States have lived under a ban on that product since 2018. A regulated event contract, distributed by a licensed broker as an exchange-traded product, is the first legal route back to a binary payoff for retail clients in the largest market. Interactive Brokers' decision to build its own exchange rather than distribute someone else's shows how seriously at least one large multi-asset broker takes that.

The third is distribution economics. Robinhood's experience shows that event contracts sell themselves inside an existing app. A forex broker's affiliate-driven acquisition model looks expensive next to that, and the brokers best placed to add the product are those that already run multi-asset apps with a large logged-in base, which is the direction the largest CFD brokers have been moving anyway.

The fourth is that prediction markets publish probabilities, and probabilities are content. Every broker's research desk now quotes them on rate decisions and elections, and the markets have become a data source that traders consult alongside the futures-implied probabilities that were the previous standard. That changes what a broker's economic calendar and news feed need to show.

Risks the record already shows

The product is new enough that its retail outcomes are not yet measured the way CFD outcomes are, but the record contains warnings. Resolution disputes, where the exchange's decision on whether an event happened is contested, have occurred at every venue and are the prediction market equivalent of a broker's requote dispute. Insider trading on event contracts is a live concern, with several documented cases of participants trading on information about the outcome of a sporting or corporate event, and the CFTC has said it is examining surveillance. Sports contracts in particular attract the same problem-gambling questions as sportsbooks, without the responsible-gambling tools state regulators require of sportsbooks. And the offshore venues carry the counterparty and legal risks of any unlicensed crypto platform.

None of that has slowed growth. The lesson from retail forex is that it will not, and that the industry which serves the product responsibly, with real disclosure and real resolution rules, is the one that survives the regulatory settlement when it comes.

Sources

• US Commodity Futures Trading Commission, orders and statements on event contracts, including the 2022 Polymarket settlement, the 2024 proposed event contracts rule and its 2025 withdrawal
• KalshiEX LLC v. Commodity Futures Trading Commission, US District Court for the District of Columbia and D.C. Circuit, 2024
• Kalshi litigation with state gambling regulators in Nevada, New Jersey, Maryland and other states, 2025 onwards
• European Securities and Markets Authority, product intervention on binary options, 2018, and national measures
• Australian Securities and Investments Commission, product intervention order on binary options, 2021, and its extension
• UK Gambling Commission and Financial Conduct Authority guidance on event betting and binary options
• Singapore Ministry of Home Affairs statement on the blocking of Polymarket, January 2025
• Published volume and market data of Kalshi, Polymarket, ForecastEx (Interactive Brokers) and Crypto.com Derivatives
• Robinhood Markets quarterly results and product announcements on event contracts, 2025
• Academic literature on prediction market accuracy, including the Iowa Electronic Markets programme

This paper consolidates publicly available information as at its publication date. It is research and commentary, not investment advice, and is revised when the sources it draws on are updated. Corrections are welcome through the contact form.