Prediction markets go mainstream, but is it investing or gambling?

Chioneso Bakr was so confident, she was willing to put money on it. 

Scrolling through an app she had found on Instagram, the 31-year-old Brooklyn musician and mother of two found a question she thought had an obvious answer: Would Taylor Swift perform at the 2026 Super Bowl halftime show? Using online prediction market Kalshi’s app, she bought “no” contracts. 

She won about $100. The payout hit her bank account within a week. “I said it’s definitely not going to be Taylor Swift. I just knew that,” Bakr said.

Bakr’s quick win was part of a fast-growing market where people buy and sell contracts based on real-world events like elections, weather and, increasingly, sports and entertainment. The contracts are similar to financial derivative products like futures, but simpler: instead of locking in a specific future price for an asset, Bakr only had to decide whether or not an event would actually happen.

The prices of  “yes” and “no” contracts depend on demand, but both prices together always add up to $1.00; the winning contract pays out $1.00, and the losing one nothing. The setup is designed to meet the legal definition of a financial swap, which requires a “potential financial, economic or commercial consequence.”

Platforms like Kalshi, Polymarket and Robinhood frame such trades as investing that turns knowledge into profit. But not everyone agrees.

“Everything about it is sports betting,” said Victor Matheson, an economics professor at the College of the Holy Cross who studies sports and gambling markets. “It looks like sports betting. It feels like sports betting. Calling it a financial market just so you can get around all the regulations is fundamentally wrong.”

That tension sits at the center of an industry that drew in nearly $64 billion last year: is it investing or gambling?

A market on the rise

Not long ago, these platforms were a small part of the financial world. That changed in 2024, when Kalshi won a case against the Commodity Futures Trading Commission (CFTC), allowing it to list contracts tied to political outcomes. The decision removed a key federal barrier, and trading surged.

Global trading volume rose more than 400% from 2024 to 2025, while monthly active users climbed from about 4,000 to over 600,000. What used to be in academia and niche finance is now something people see on their phones, often through social media, as Bakr did.

“Now prediction markets have become a buzzword,” said Lin Peng, a finance professor at Baruch College. “You see it in the news. It’s drawing attention from regulators.”

The shift also changed what was being traded. “The concept of offering sports-related contracts on a CFTC-designated exchange has only really happened in the last couple of years,” said Jack Murphy, a lawyer at Akin Gump Strauss Hauer & Feld LLP and a former CFTC attorney. “It started around the 2025 Super Bowl. It wasn’t an issue before that.”

Regulatory lines blur

As the market grew, so did the scrutiny. In Arizona, prosecutors filed criminal charges on March 17, 2026, accusing Kalshi of operating an unlicensed online gambling business that allowed residents to wager on sports and elections without state approval. Nevada regulators issued a cease-and-desist order in March 2025, and Massachusetts filed suit in September. More than 20 civil cases are now pending nationwide.

Scroll through to see the legal battles over time:

“I think there’s a serious question about whether or not the state has a strong interest in regulating gambling within its territories,” said Derrick Beetso, a law professor at Arizona State University and a member of the Navajo Nation. “Gambling has always traditionally been more of a local issue left up to local communities.”

For tribal governments, the issue is tied to long-standing agreements. Under the Indian Gaming Regulatory Act (IGRA), tribes operate casinos through compacts with states that define which forms of gaming are allowed and who may offer them. Those agreements underpin billions in revenue tied to public services.

“What’s going on with the prediction markets is that they’re infringing on those agreements,” Beetso said. “They’re basically jeopardizing those agreements and upsetting what are called the settled expectations between the states and the tribes.”

Federal law governs financial products like futures and swaps, while state law governs gambling. “Right now they’re battling the legal fight to determine where the line is,” Beetso said. “What’s really gambling, what’s really gaming and what should be protected under the IGRA and the state laws.”

How they differ from sportsbooks

Kalshi and Polymarket now account for most trading activity among established prediction markets. “Liquidity begets liquidity,” said Baruch College’s Peng. “You want to trade in a liquid market, you’re more likely to find a counterparty.”

Opportunity and abuse

As trading concentrates on a few platforms, price differences between them can create arbitrage opportunities. “We’re talking about there’s like a two, three percent gap. And that’s quite substantial,” said Dexin Zhou, an associate professor of economics and finance at Baruch College. “In the end, if you have a disagreement on prices, there is a way for you to make a profit.”

Take the 2026 World Cup, spread across the United States, Canada and Mexico. Imagine you open two prediction market apps, both of which offer contracts on whether Brazil will win the tournament. On one app, “Yes” trades at 49 cents. On another, the “no” side trades at 41 cents.

You buy both, spending 90 cents in total. No matter how the tournament ends, one side pays out $1.00, locking in about 10 cents in profit.

It may not sound like much. But picture this: You put up $10,000. Let’s see how it plays out in the calculator below.

An analysis of Polymarket data estimates about $40 million in arbitrage profits extracted between 2024 and 2025. “As these markets grow, as you get more institutional interest, you’ll start to see arbitrage opportunities decline,” said former CFTC attorney Murphy.

Arbitrage is one way to make money. In other cases, profits may come from nonpublic information. In late December 2025, an anonymous Polymarket account built a position on the removal of Venezuelan President Nicolás Maduro. When U.S. forces captured Maduro on Jan. 3, the trade paid out more than $400,000.

Weeks later, a trader known as “Magamyman” made more than $553,000 on contracts tied to Iran’s Supreme Leader, Ayatollah Ali Khamenei, shortly before an Israeli strike killed him. Hundreds of millions of dollars flowed into bets on the timing of military action.

Some cases have led to arrests, including in Israel, where a military reservist and a civilian were indicted for using classified information to trade on a June 2025 strike on Iran, generating about $150,000.

Other cases have been handled by the platforms. On Feb. 25, 2026, a video editor for YouTuber MrBeast was suspended and fined for using nonpublic information to trade on upcoming content. A former California gubernatorial candidate was also banned for trading on his own race.

Regulators try to catch up

“I think we’ll see insider trading enforcement from the CFTC at some point,” Murphy said. On March 12, 2026, the Commodity Futures Trading Commission issued an advance notice of proposed rulemaking and said it has the authority to police insider trading in these markets.

In recent weeks, Congress has entered the fray by introducing several bills. One would bar federal officials from trading on contracts tied to information obtained through their duties. Another would prohibit the President, Vice President and members of Congress from participating in these markets.

A bipartisan Senate proposal introduced on March 23 would ban sports-related contracts. None of the measures has passed.

Polymarket updated its policies on March 23 to prohibit trades based on stolen information, illegal tips or positions where users can influence outcomes. Kalshi has barred political candidates from trading on their own campaigns and restricted professional athletes from markets tied to their sport.

“You want the market to be as informative as possible,” Zhou said. “But you also care about the fairness dimension.”

The market continues to move faster than the rules around it. “It’s kind of like the Wild West at this moment,” he said. For now, users like Bakr are not paying attention to those debates.

She plans to return to the platform once she gets her tax refund. “I think once I get the hang of it, I will make more money for sure.”

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