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What are prediction markets and why is the Trump administration on ​board?

2026-05-15T10:00:51.300Z / https://www.cnn.com/2026/05/15/politics/prediction-markets-kalshi-polymarket-gambling-explained

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Billions of dollars are changing hands each week on prediction markets, sites whose popularity is exploding and that allow users to trade on real-world events like sports, politics and pop culture.

If it sounds like gambling, most US states say it is and are in the middle of a legal showdown with the federal government over how to regulate the industry. The Trump administration largely backs these companies at the same time the Trump family is hoping to cash in with its own stake in the industry.

And the potential for manipulation is clear. A special operations soldier was charged with allegedly using classified information to make over $400,000 on a series of well-timed bets, including that Venezuelan President Nicolás Maduro would be out of power shortly before he was nabbed from Caracas by US special forces.

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I talked to CNN senior reporter Marshall Cohen, who covers prediction markets, about how they work and what could happen to them in the future.

Our conversation, edited for length, is below.

What are these prediction markets, and how do they work?

COHEN: Prediction markets give you a chance to bet on almost anything, in the sense that markets will go up, typically around a yes-or-no question. Will something happen by X date? Will Trump say X, Y or Z? Will this person win an election? Will the Lakers win their game tonight? When will Taylor Swift’s next album come out? Anything.

The market is structured as an “event contract” where you take a position, yes or no, and you put your money behind it. If something has a 25% chance of happening, you can buy a share of “yes” for 25 cents, and get paid out the full $1 if you’re right. (Minus some fees.) You make money if you bet correctly; you lose your money if you were wrong.

COHEN:To most people, yeah, it seems pretty similar. But there is a colossal legal showdown right now between the federal government and the states over that exact question.

The federal government and companies like Kalshi and others argue that this is not gambling. They say these are financial markets. They say they are trading in something called a derivative swap. And that it serves the public interest to let people hedge risk through a market.

For the record, CNN has a partnership with Kalshi and we use Kalshi’s data to cover major political and cultural events. CNN employees are prohibited from using prediction markets.

Supporters argue that the purpose of these financial markets is rooted in the commodity trading that has existed for a very long time in this country, that farmers have used to hedge their risk for a bad crop season, corn futures, soybean futures, etc.

Technically and legally speaking, prediction markets are set up in the same way.

That’s the official line, from the Trump administration and the industry.

More than forty states — think about that: forty states! A massive coalition of some of the most liberal progressive states, like Oregon, Washington and California; and then more purple states like Pennsylvania, North Carolina, Ohio and Iowa; all the way to serious conservative bastions like Alabama, Arkansas, Mississippi — have filed briefs in court saying this is gambling.

I’m an Eagles fan. If you want to pull up the same Eagles/Cowboys game on DraftKings, but you’re in a state where it’s illegal because they don’t allow sports betting, you can just switch over to Kalshi and trade on that game on a prediction market. It’s pretty indistinguishable for the end user. That’s the position of the casino industry, obviously. That’s the position of 40 states, too. And it’s being litigated in court right now.

COHEN:Under Biden, the CFTC (Commodities Futures Trading Commission) did try to ban prediction markets on sports and on elections, which are a very large chunk of the business.

The Biden administration’s argument was that with sports this is just straight-up sports betting, and already banned by federal regulations; the election stuff poses risks to the integrity of our democratic system; and that it just does not fall into the definition of what derivative swaps are meant to be.

Their argument was, essentially, the ability to hedge risk (like farmers with a bad corn season) is in the public interest. However, the number of LeBron James rebounds is not important to the national economy.

The Biden administration was promulgating a rule in 2024 that did not get across the finish line before the election. The Trump administration withdrew that proposed rule and has now gone on offense to protect these companies by suing the states that are trying to regulate them.

COHEN: There is an apparent financial conflict of interest here that has been flagged by ethics watchdogs and good government groups. I’ll explain why, but let me say upfront that there is no evidence at this point, publicly available, of anything improper that’s been going on to effectuate that conflict of interest.

Here’s the possible conflict number one: One of Donald Trump’s biggest sources of revenue right now is his social media company, Trump Media and Technology Group. And they have announced plans, in addition to Truth Social, that they want to launch Truth Predict. It’s not clear from the company’s latest public statements if this would be a new prediction-market exchange, or just a licensing deal with another company.

Secondly, the president’s son, Donald Trump Jr., is a paid adviser to Kalshi. He is also an investor in Polymarket.

The better that these companies do, the better Donald Trump Jr. will do. And so there is overlap there, although I should note Donald Trump Jr. and his spokesman have told us many times that, number one, he doesn’t bet on prediction markets. And number two, he hasn’t interacted with any government officials on behalf of these companies as well.

COHEN:The companies argue that there is no house. That’s what differentiates them from casinos. In a casino you’re betting against the house – they make money when you lose, and sometimes they turn away big winners. But on prediction markets, it’s closer to trading on a financial market and Kalshi doesn’t make money if you win or lose. They just take fees off the volume. They say that they want you to win in ways that casinos don’t.

What’s the difference between Kalshi and Polymarket?

COHEN:These are the two juggernauts in the industry right now. But Kalshi and Polymarket are very different.

Sitting here today, Kalshi is approved by the CFTC to operate in the US and offer prediction markets. It was approved in 2020 under the first Trump administration, and the Biden administration didn’t try to take it away. Because they are CFTC-regulated, they have to follow federal law, which is why, if you go to Kalshi’s website right now, you will not find markets on which country Iran is going to strike next, or if the US is going to send ground troops to Iran. Federal law prohibits derivative markets or event contracts about wars and Kalshi insists that because they are registered in the US, they follow US law.

Polymarket is Kalshi’s biggest rival. Polymarket is also approved to operate in the US. The Trump administration cleared the way last year by doing two things:

Number one, they ended a criminal investigation into Polymarket that began under Biden. And then the CFTC approved Polymarket to offer exchanges and markets in the US last year.

However, Polymarket’s US website was invite-only for months, and they only opened it up to everyone this week. That means everything that went viral on Polymarket until this point — the Maduro bets, the Iran bets, all the possible insider trading that we’ve been buzzing about for months — that was all happening on Polymarket’s offshore site. Kalshi executives often note that Polymarket is incorporated in Panama, which is not known for having aggressive insider trading laws.

Technically, Americans are not allowed to use that offshore site.

COHEN: Most people, especially the young people that love these markets, they know how to use a VPN (virtual private network). If you can get through the geofencing, then you’re good to go. And that’s exactly what the special forces soldier who was accused of that Maduro trade allegedly did.

COHEN:The head of the CFTC — which is one of the lead investigative bodies for insider trading on these platforms — Mike Selig, he was appointed by the president last year and confirmed in December. He had his first public hearing since taking over a couple weeks ago and Democrats grilled him:

Would you go after insider trading if it was a Republican?

Would you go after insider trading if it was a member of the Trump family, like Don Jr., or if it was someone in the White House?

Selig said, at least at his hearing, there would be zero tolerance. We are cracking down. Please be patient. It takes time, but we are cracking down. And then one week later, we saw this first arrest.

COHEN: Many experts would say no. I’ve spoken to lawmakers and former officials; even the inspector general for the CFTC has said that this is a challenge. The agency right now is at the smallest size that it has ever been since Dodd-Frank, the banking and Wall Street reform law that beefed up the agency after the financial meltdown of the late 2000s.

COHEN: CFTC shrank by 25% last year, largely because of resignations and retirements. And the chairman — I interviewed him recently — he said that he is trying to fill some of those vacancies that were created by the DRP (deferred resignation plan, which offered eight months of pay for federal employees to voluntarily resign). There were also layoffs that one former CFTC official told me were “not exactly logical.” It is kind of wild that Selig is trying to fill positions that were vacated by DOGE. But he also insists that they are bringing in AI in ways that the last administration never did, so they can do more with less.

COHEN: You’re not gonna hear me advocate for insider trading. But some thought leaders have made that argument. The CEO of Polymarket has leaned into that previously, that it’s kind of cool that insiders will go to his platform and divulge information to the public. There’s a more libertarian-leaning school of thought with these prediction markets that corruption and graft is always going to exist, but this does it in a way that surfaces the information to the public.

Polymarket has moved a little bit away from that position. They announced some new safeguards last month to further restrict insider activity. The role of insiders is debated, but insider trading is a crime. If you have a duty of confidentiality to keep certain information secret and then you trade on it, that’s a crime.

But there’s also a lot of stuff where you don’t have a duty of confidentiality, and then you can trade. We reported recently about Kalshi suspending three politicians who were betting on their own campaigns.

That violates Kalshi’s rules, which prevent someone who has the ability to change an outcome from betting on the outcome. If you’re a candidate, you could bet that you’re going to drop out, and then drop out.

Is that illegal? The legal experts I spoke to said, if you’re the candidate, if you’re running for Congress, who do you have a duty of confidentiality toward? Yourself? It’s a legal gray area and probably wouldn’t be prosecuted.

That kind of reminds me of the Enhanced Games: It may be both wrong and honest

COHEN:That sounds incredibly dangerous, but people could argue it’s more honest than what Mark McGwire and Barry Bonds did.

But if Maduro woke up in the middle of the night when US forces were hovering over his compound in a helicopter and said, Oh my god, I’m about to get captured— and in those five minutes before they busted in, he pulled out his phone and bet all his money on Polymarket that he would be out as leader of Venezuela by the end of that month — that would be completely legal because it would be based off public observation, not private information. That would be completely legal. But troops on that helicopter couldn’t make the same bet because they had been sworn to keep the classified operation private.

Is there discussion about federal regulation, or is it ultimately going to be a court battle between the CFTC and states?

COHEN: The CFTC is currently in the process of writing new federal rules. But many people now are just assuming this issue is going to go to the Supreme Court probably next year or so.

In the meantime, lawmakers are starting to wake up, mostly Democrats, but some Republicans. There are some Republican and bipartisan bills in both the House and the Senate that would rein in this industry, whether any of those get the support of leadership and start getting attached to bills that are actually going to pass is TBD. But we’re starting to see lawmakers on both sides want to crack down. Not every bill is the same. Some of the bills would ban all sports bets from these platforms. Some of the bills would ban election-related bets. Some of the bills would stiffen the penalties for insider trading. Other bills would prohibit government officials and the executive branch and Congress from betting on markets about government actions or elections where they’re involved.

These aren’t just press releases coming from liberal Democrats who hate the administration. There are folks like Sen. John Curtis from Utah and Sen. Todd Young from Indiana — serious conservatives who have a problem with some of what’s going on. They’ve teamed up with Democrats to at least take that first step and announce legislation.