How prediction markets are creating new opportunities and challenges

Prediction markets are unlocking new possibilities while introducing operational, technological and regulatory challenges for participants.

In brief

• Prediction markets have gained momentum and popularity since the 2024 presidential election, expanding across sports, culture and economics. 
• New Commodity Futures Trading Commission (CFTC) guidance is shaping regulatory expectations while supporting broader market participation. 
• Prospective participants are facing new challenges as these markets operate around the clock and will require 24/7 technical and operational support.

Event contracts are not new, but the 2024 US presidential election significantly increased public awareness and participation in prediction markets. What began largely as political contracts traded by a retail customer base has evolved into broader prediction markets, offering event contracts across sports, politics, culture and economics, and expanding beyond retail clients to include institutional participants. These emerging financial products continue to grow rapidly, supported by new Commodity Futures Trading Commission (CFTC) leadership that is undertaking efforts to define the regulatory standards applicable to these products and markets.

Regardless of the underlying event, all event contracts sit under the purview of the CFTC, which has been reaffirmed in recent CFTC communications. Prediction markets operate through the same regulated infrastructure as the traditional futures market. This includes:

As participation broadens, market entrants face a new and distinct set of operational, regulatory and risk management challenges, particularly where prediction markets diverge from traditional derivatives markets.

Prediction markets are attracting a diverse range of participants, including:

• First movers and prediction market natives who are leading innovation in areas such as institutional adoption and the types of contracts being offered
• Traditional financial market infrastructures (FMIs) who bring experience in CFTC‑regulated markets outside of event contracts, with capabilities that help provide new entrants access to prediction markets
• Gaming companies that contribute extensive retail customer bases and marketing expertise

This combination of capabilities is driving partnerships, investment and merger and acquisition (M&A) activity, while intensifying competition and innovation across the ecosystem.

Market participants must consider the broader application of event contracts. Beyond their role as tradable instruments, these products generate market‑implied probability data that offers valuable insight into market expectations. This positions prediction markets as both a trading venue and an emerging source of decision‑support intelligence while providing a potential additional revenue stream for certain participants.

CFTC communications point to a more defined regulatory path

In March 2026, the CFTC issued both a prediction markets staff advisory and an advance notice of proposed rulemaking (ANPRM), signaling a regulatory focus on reducing manipulation risk and protecting the integrity of underlying events.

• Prediction markets staff advisory: Clarified the scope of the CFTC’s jurisdiction and addressed key challenges including insider information, contract design and event integrity
• ANPRM: Indicated that prediction markets are expected to continue operating primarily under the CFTC’s existing DCM core principles while seeking feedback on proposed clarification around:
  • Permissible contract types
  • Monitoring and mitigation of manipulation risk
  • Risk management and margin frameworks
  • Appropriate protections for retail participants

Additionally, an area of focus for potential market participants and the CFTC has been on the gray area that sports-based event contracts sit in. Some state regulators have argued that these should be governed by them. However, the CFTC recently affirmed that it views all event contracts (including sports contracts) to be swaps under the Commodity Exchange Act and that the CFTC has exclusive jurisdiction over these contracts. 

In parallel, there has been an increase in applications and faster approvals from IBs, FCMs, DCMs and DCOs. Shorter timelines suggest a shift toward a more open and engaged regulatory posture. 

Infrastructure considerations for potential market participants

While the underlying infrastructure of prediction markets is like that of traditional CFTC regulated markets, there are important nuances that market participants must consider: 

• Always-on infrastructure: Prediction markets operate on a 24/7 basis, requiring commensurate capabilities, including but not limited to around-the-clock trade and customer support, and continuous technology operations. 
• Need to manage liquidity at different points in time: Participants must consider the need for movement of funds over non-banking hours to meet liquidity requirements. Furthermore, firms must be equipped to manage significant fluctuations that may occur when there are concentrations of liquidity in certain contracts at key event times, such as sports games or elections.
• Complex surveillance requirements: The recent CFTC DMO staff advisory (March 2026) and the ANPRM outlined the CFTC’s expectations for how exchanges must perform surveillance on event contracts, including coordination with professional leagues for sports event contracts and a focus on contracts around single actors, micro‑events and subjective outcomes.

The broader value considerations of event contracts

The pricing of event contracts reflecting the market-implied probability of a specific outcome generates valuable data on collective market expectations. This has contributed to growing interest in prediction market data as an informational signal and firms recognizing how pricing data derived from event contracts can inform decision-making across a range of economic, political, and commercial contexts.