ORLANDO, Fla. – Have you ever told your friend, “I’ll bet you $5 so and so wins a game,” or “Who do you think is going to win an election?”
That’s the thought process behind prediction markets.
Organized prediction markets have been around since 1988, when University of Iowa professors wanted to get a better idea of who would win elections that year. They thought “what better way to gauge who people think will win than to ask them who they’d put money on.”
That’s the thought process behind the birth of modern-day prediction markets. The two largest, Kalshi and Polymarket (founded in 2018 and 2020, respectively) gained massive popularity during the 2024 U.S. presidential election. Users put up more than $3 billion on Polymarket alone.
Essentially, the platforms operate like stock exchanges: partnering people who think something will happen with people who think something won’t. At the same time, prices for offerings work in the inverse: If you buy a “yes” prediction for 60 cents, a “no” would cost 40 cents. In this scenario, 10 “yes” shares would cost $6, and 10 “no” shares would cost $4. At the end, users are paid out if they bought the correct side of the prediction.
Prices for each contract move based on what people are willing to pay for them (supply and demand), which signals the outcome of an event that more users believe will happen. All the money from the contracts is pooled together and is then distributed after the result is finalized, but if the price for a contract moves, users can sell their event contracts for a profit, similar to a stock.
Conversely, sportsbooks, whether in person or online, feature offerings and odds for bettors to place wagers on. If the bet wins, the sportsbook pays the bettor out. If the bet loses, the sportsbook keeps the money from the wager.
That distinction allows prediction markets to be available in all 50 states, while sports betting is legal in just 30. But make no mistake, sports is by far the biggest money maker for prediction markets: Kalshi’s CEO says the platform saw more than $1 billion in trades on Super Bowl Sunday this year, about 1/7 of the total money wagered on the big game.
But those large handles are leading some states to disagree, saying the platforms are skirting their gambling laws. A number of states have introduced legislation in the last year to rein in prediction markets, and even more filed cease-and-desist lawsuits. But in early April, the CFTC, the board that oversees the markets, filed lawsuits against three of those states, saying only they, a federal entity, have the authority to regulate contract markets.
It’s important to note that President Donald Trump’s son, Donald Trump Jr., has served on the Kalshi advisory board since January 2025, and he’s on Polymarket’s advisory board too. His firm invested in Polymarket in August as well.
The Trump administration has also come under scrutiny for insider trading allegations related to prediction markets. The White House sent a notice to aides saying “the misuse of nonpublic information by government employees for financial benefit is a very serious offense and will not be tolerated”. That warning was sent March 24, a day after an unusual spike in oil futures trading, only minutes before President Trump announced he was postponing strikes on Iran’s power plants, although there’s no evidence anyone within the administration used insider trading for those bets.
Both Kalshi and Polymarket, for their parts, have instituted measures on their platforms to curtail insider trading. As of this writing, the CFTC has yet to pursue insider trading penalties against prediction market users, even though they have the legal authority to (like the SEC does for insider trading in the stock exchange). Federal prosecutors do seem to be exploring whether prediction market trading could violate existing insider trading laws.
Legislation was filed in Congress earlier this year to address insider trading concerns; legislation co-sponsored by Orlando Representative Darren Soto.