Kalshi and Polymarket — the two biggest prediction markets — have become cultural phenomena over the past year as they have surged in popularity.
The sites allow users to wager on the outcome of just about anything, from elections to details about Taylor Swift’s wedding to the winner of the reality-TV show “Love Island.” This summer, they helped make the World Cup the largest gambling event ever.
But prediction markets have faced increasing scrutiny over insider trading and manipulation. Some 20 states have attempted to enforce existing anti-gambling laws to ban them, with some success.
Here’s what to know.
What are prediction markets?
The sites allow users to gamble on future events through “event contracts,” in which users place wagers based on a yes or no question.
For example, a current bet on Kalshi asks whether the Federal Reserve will raise rates in September. The total contract’s price adds up to $1. Users can buy as many contracts as they want — as of Wednesday, paying 56 cents to vote in favor of a rate increase. Winners will be given the full $1 per contract paid out from those who lost.
The platforms make money by charging a fee for each bet.
Other investing and betting apps, including Robinhood, FanDuel and DraftKings, have moved into prediction markets, too. And Meta’s chief executive, Mark Zuckerberg, dispatched a small team at his company this year to create a smartphone app similar to Polymarket and Kalshi.
What can you wager on?
While the markets’ bread and butter has long been sports, more people are turning to the platforms to predict world events, reality-TV show endings or even whether congressional salaries will increase.
A loosely coordinated group of traders known as sharps have mastered events contracts like the mention markets, predicting what word or phrase will be said in a political speech.
In the United States, Polymarket largely limits users to wagering on sports. It offers a wider range of markets overseas or to users with a virtual private network to hide their location.
Are the markets legal?
In most parts of the world, yes. It’s trickier in the United States.
About 20 states have tried to bar the prediction markets by enforcing existing state anti-gambling laws, and Minnesota this year became the first state to pass a law to ban them.
But Kalshi, Polymarket and the Commodity Futures Trading Commission, which regulates the markets at the federal level, have argued that the states have no such power. They contend that the platforms are commodity exchanges that aid “trades” — not gambling sites.
The two sides are battling it out in court. In July, Nevada became the first state to force Kalshi to restrict users from wagering on sports, elections and entertainment. And a state judge in Seattle last month barred Kalshi from most operations in Washington State.
Appeals courts have also weighed in. Late last month, the U.S. Court of Appeals for the Ninth Circuit in San Francisco ruled that states had the ability to regulate prediction markets. But the ruling contradicted a decision in April by the Third Circuit court in Philadelphia. That court said Kalshi’s sports event contracts were considered financial tools known as swaps under the Commodity Exchange Act, which granted them federal pre-emption from state laws.
Legal experts expect that the Supreme Court will ultimately decide how prediction markets should be regulated.
What are the concerns about prediction markets?
The huge popularity of Kalshi and Polymarket has created fears about how susceptible they are to manipulation by those with insider information. The sites have rules against using inside information to place wagers, but many users have been caught trying to manipulate the markets anyway.
Kalshi last week banned multiple users for insider trading, including George Santos, the former representative from New York. Mr. Santos faced allegations of insider trading after he placed bets on Kalshi about whether he would attend President Trump’s State of the Union address in February. Before the speech, he posted on social media that he planned to attend but then didn’t.
In July, Kalshi said a White House teleprompter operator had used his position to win around $100,000 betting on what Mr. Trump would say in his speeches.
And in April, an Army Special Forces soldier who helped capture Nicolás Maduro, the president of Venezuela, was charged with using classified information to make more than $400,000 betting on Polymarket on various outcomes related to the mission. The soldier has pleaded not guilty.
Additionally, some lawmakers and others have said they are worried that the sites fuel gambling addictions and prey on users.
What are Kalshi and Polymarket’s ties to the Trump family?
The Trump family has built up a financial stake in the industry since last year. The president’s eldest son, Donald Trump Jr., joined Kalshi as an adviser last year and received shares in the company worth more than $300,000 at the time. He also began advising Polymarket and invested in it through 1789 Capital, the venture capital firm where he is a partner.
At the same time, President Trump has taken steps to boost the industry. Michael S. Selig, appointed by the president to lead the Commodity Futures Trading Commission, has spoken enthusiastically about the companies and sued states that tried to regulate them. The president declared on Truth Social that prediction markets would “thrive” under his leadership and said Mr. Selig was “respected by all.”
Donald Trump Jr. told The New York Times this year that he invested as a private citizen and held “no policy position and no role within the administration whatsoever.”
Are the markets accurate?
Sometimes. Studies have shown that large groups of people make better predictions than individual experts, a phenomenon often called “the wisdom of crowds.”
That means that looking at prediction market data can be useful in forecasting events related to politics, business, foreign affairs or even weather.
Prediction markets are “the most effective way to aggregate information and the crowd wisdom,” Tarek Mansour, who co-founded Kalshi, told The Times. “People don’t lie when money’s involved. You want to be right about your predictions so you don’t lose money.”
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