Prediction markets have moved from niche forecasting tools to mainstream event-trading venues. Industry data providers tracking major platforms show monthly volumes rising from under $100 million in early 2024 to above $8 billion by December 2025, alongside accelerating institutional participation. In January 2026, aggregated trading volume across leading venues reached about $10.5 billion month-to-date at the time of reporting, based on Dune Analytics data. Please note that volume metrics can differ by methodology (e.g., “notional” vs “real” volume), and some dashboards caution that wash-volume filters may not be applied.

This rapid growth reflects increasing interest from both retail and institutional participants, with prediction markets gaining traction across sports, politics, economics and cultural forecasting, while also attracting significant investment and rising valuations.

What looks like a simple “Yes/No” contract can be treated as regulated event contracts (derivatives) in one country, licensed betting in another, and unlawful gambling elsewhere. The result is a fragmented global landscape where the same product can be compliant in one jurisdiction and enforcement-triggering in the next.

This article explains how prediction markets work, why they sit on the boundary between gambling and financial regulation, and what founders must get right: licensing analysis, geofencing, AML/KYC and sanctions compliance, market-abuse controls, and governance around contract resolution. If you’re launching or scaling a prediction market platform, legal structuring is not a formality — it is part of the product.

Prediction Markets Explained

Prediction markets are trading platforms where participants buy and sell contracts tied to the outcomes of future events. These events can range from elections and economic indicators to sports outcomes or public policy developments. Rather than expressing an opinion in a survey, users take positions with capital at risk — and the market continuously updates the implied likelihood of each outcome based on trading activity.

In practice, prediction markets function as a mechanism for information aggregation and peer-to-peer risk transfer. When many participants act on their beliefs (and their information), the market price becomes a real-time signal of collective expectations. That signal can be used for forecasting, scenario planning, and, in some cases, hedging specific exposures — depending on how the product is structured and what local regulation permits.

What Traders Buy: “Yes/No” Outcome Contracts

Most prediction markets use simple binary contracts that settle based on whether a defined event occurs. A trader typically buys a “Yes” position (the event will happen) or a “No” position (the event will not happen).

If the event resolves as “Yes,” “Yes” contracts pay out; if it resolves as “No,” “No” contracts pay out. This structure makes the product intuitive — but legally important: a “Yes/No” contract can look like a bet, or a derivatives-like event contract, depending on where the platform operates, how trades are matched, and whether the operator is seen as facilitating peer-to-peer trading or effectively acting as the counterparty.

How Prices Become Probability Signals

Prediction market prices are often interpreted as probabilities. When many participants trade, the contract price reflects the market’s collective estimate of the likelihood of the outcome. As new information emerges — news, data releases, events on the ground — traders update their positions, and prices adjust quickly.

That is the core forecasting value: prediction markets translate dispersed opinions and information into a single, continuously updated signal. The more liquid and competitive the market, the more meaningful that signal tends to be. But the same features that make prediction markets powerful — rapid repricing, high participation, and incentives to trade on information — also create regulatory sensitivities, especially around market integrity, manipulation, and insider information for certain event types.

Prediction Markets vs Financial Markets

Prediction markets are sometimes compared to traditional financial markets, particularly derivatives and futures markets, as both involve trading contracts linked to future events. However, important distinctions remain:

• Underlying Assets: Financial markets typically involve securities, commodities, currencies or indices with intrinsic economic value. Prediction markets, by contrast, are based on discrete event outcomes, such as whether a specific event will occur, rather than on ownership of an underlying asset.
• Purpose and Use Case: Financial markets primarily serve capital formation, investment, hedging and price discovery for real economic activity. Prediction markets focus on forecasting and information aggregation, producing probability-based insights rather than facilitating long-term investment.
• Market Design: Financial markets operate within highly structured frameworks, often involving central clearing, regulated exchanges and standardised instruments. Prediction markets usually rely on simpler contract structures and may operate on peer-to-peer or platform-facilitated models with varying degrees of centralisation.
• Regulatory Treatment: Financial markets are typically regulated under securities, derivatives or commodities laws. Prediction markets may fall outside these frameworks or sit at their margins, leading regulators in some jurisdictions to treat them as gambling, financial instruments or a hybrid of both, depending on their design and operation.

While prediction markets may resemble financial markets in form, these differences have significant regulatory implications and contribute to the fragmented and evolving regulatory treatment of prediction market platforms worldwide.

Prediction Markets VS Traditional Gambling

Prediction markets and traditional gambling share surface similarities: both involve participants risking capital on uncertain future outcomes. However, key distinctions include:

• Market Structure: Prediction markets typically involve trading contracts between participants rather than bets against a bookmaker.
• Economic Function: These markets can produce valuable data on expectations and become tools for hedging and risk management, beyond pure entertainment.
• Financial Characteristics: Many prediction market contracts resemble derivatives (financial instruments whose value depends on underlying outcomes) rather than fixed-odds wagers.

These conceptual differences have important regulatory implications, though they do not immunize prediction markets from classification as gambling in many jurisdictions.

Prediction Markets Regulation: Key Jurisdictions & Market Approach

Despite their innovative structure, prediction markets often trigger legal scrutiny because they resemble gambling or derivatives trading under existing law.

Regulators focus on:

• Consumer protection and fairness.
• Anti-money laundering and financial integrity.
• Market abuse prevention.
• Local licensing and tax compliance.

As a result, prediction markets generally require licensing or authorisation before operating in a given jurisdiction. Failure to secure proper authorisation can lead to platform bans, enforcement actions, or criminal exposure.

As of now, there is no single regulatory approach in all jurisdictions:

United States: CFTC, Event Contracts, DCM Pathway

The Commodity Futures Trading Commission (CFTC) regulates certain prediction markets as derivatives exchanges. Kalshi, for example, operates as a CFTC-licensed designated contract market (DCM), legally offering event contracts to U.S. residents. Other platforms, like Polymarket, have faced bans or restrictions due to unregistered activity, but are now seeking regulated pathways.

Canada: Binary Options Restrictions

National bans on short-dated binary options and provincial gaming laws have resulted in restricted access for some platforms. Kalshi restricts all Canadian users, and Polymarket’s operations in Ontario have been limited following regulatory settlements.

United Kingdom & EU: National Gambling Regimes & Enforcement Fragmentation

In the United Kingdom and many EU Member States, prediction markets are generally assessed under national gambling legislation rather than financial markets law. Countries such as the UK, France, Germany, Italy and Spain typically classify prediction markets as a form of betting or gambling where participants stake value on the outcome of uncertain future events.

In some jurisdictions, prediction market activity may be permitted only where the operator holds a local gambling licence and complies with strict consumer protection, AML and operational requirements. In others, prediction markets may be considered unlawful gambling unless expressly authorised by the relevant national regulator. As gambling is regulated at the national level rather than on the EU level, the regulatory treatment of prediction markets varies significantly between countries.

Singapore: Gambling Risks

Local regulators have applied remote gambling laws to block access to some prediction markets, considering them unlicensed gambling operations. For operators, Singapore is commonly treated as a “restricted” jurisdiction.

Major prediction market platforms maintain restricted jurisdiction lists to comply with local legal constraints. For example, Polymarket currently restricts access from approximately 33 jurisdictions worldwide, including Australia, Belgium, Germany, France, the United Kingdom, Italy, Singapore, Taiwan and the United States. These lists evolve in response to regulatory developments and enforcement actions, making an up-to-date legal review essential prior to market launch.

Platform Design Choices That Change Your Regulatory Perimeter

Beyond jurisdictional licensing and market access restrictions, prediction market operators should carefully assess how specific operational and technical design choices may trigger additional layers of regulation.

Custody, Settlement, Payment Rails (Fiat/Crypto)

Where a prediction market facilitates transactions in crypto-assets and operates through a partially centralised model, it may fall within the scope of crypto-asset or virtual asset regulatory frameworks.

The risk is particularly relevant where the platform matches orders between buyers and sellers, maintains custody or control over user assets, or otherwise manages client funds. In many jurisdictions, these activities are regulated and require prior authorisation or licensing. Careful technical and legal structuring is therefore essential to avoid unintentionally triggering crypto-asset regulation and the associated compliance burden.

Market Makers & “House-Like” Risk

The involvement of market makers in prediction market operations should be assessed with particular caution. In certain jurisdictions, market-making activity may alter the regulatory characterisation of the platform, potentially shifting it from a peer-to-peer market model to a structure resembling betting against the house. This distinction can have material regulatory consequences, including the applicability of stricter gambling or financial market rules.

Insider Trading and Conflicts of Interest

Prediction markets are especially sensitive to insider information and conflicts of interest, particularly where markets relate to corporate events, public policy decisions, or non-public information. Operators should implement robust internal controls, disclosure policies and monitoring procedures to mitigate risks of insider trading, market manipulation, or fraud, which in many jurisdictions may carry civil or criminal liability.

A Compliance Checklist for Founders

Given the complexity and fragmentation of global regulation, launching a prediction market platform requires careful regulatory structuring, including analysis of:

• Target jurisdictions and local regulatory regimes.
• Licencing requirements (gambling vs financial market licensing).
• Mode of operation (centralised vs decentralised technology).
• Payment systems and compliance with AML/KYC rules.
• Technology choice and data governance.
• Corporate and team location planning.

Ignoring these factors can lead to costly enforcement actions or forced market exits.

Prediction Markets: Legal & Compliance Checklist (2026-2027)

• Regulatory classification per jurisdiction: gambling, derivatives/event contracts, or hybrid.
• Licensing pathway: operator licence (gaming) vs market/exchange registration (financial).
• Geofencing + restricted jurisdiction controls: document rules, IP/device checks, sanctions screening.
• AML/KYC program: onboarding, transaction monitoring, suspicious activity reporting (where applicable).
• Market integrity controls: manipulation surveillance, position limits (where needed), insider-risk policies.
• Custody & payments: who touches customer funds; fiat/crypto rails; segregation and safeguarding.
• Resolution governance: oracle design, dispute process, error handling, and audit trails.
• Ongoing monitoring: regulator updates + enforcement trends; keep terms, disclosures, and controls current.

Conclusion: Growth is Real, but so is Enforcement Risk

Prediction markets are now a serious intersection of forecasting, trading, and regulation. Their structure may differ from traditional gambling, but that distinction does not prevent regulators from treating them as gambling or as regulated event contracts depending on product design and local law. In the United States, the CFTC has recognised a regulated pathway for event-contract trading through designated contract markets. In the UK and across the EU, prediction-market activity often maps onto national gambling regimes, creating fragmented requirements and uneven enforcement risk.

In 2026, the winning platforms won’t just be those with liquidity — but those that can prove compliance by design: licensing strategy, geofencing, AML/KYC, market integrity controls, and robust governance around contract resolution. Projects can move fast in this market — but only if legal structuring is treated as core infrastructure, not an afterthought.

Final Remarks

Whether you are planning to launch a new prediction market platform or expand the functionality of an existing product, the Aurum team provides specialised legal support tailored to your business model, technical architecture and target markets.

Aurum advises prediction market teams on classification and licensing strategy (gaming vs event contracts), jurisdiction scoping and geofencing, AML/KYC and sanctions controls, market-integrity policies, and resolution governance — aligned with your actual product design and operating model. If you want a clear, actionable view of your risk perimeter, we can run a jurisdiction-and-licensing assessment and deliver a practical roadmap for launch or scale.