Online prediction markets that allow participants to bet on the likelihood of future events have been around for decades, but for most of that time, they remained niche exchanges like Iowa Electronic Markets.
Not anymore. In recent months, trading volumes on these markets have surged, and it’s not just sports fans putting some skin into the game. The growth is being driven by a convergence of several forces, said Braden Perry, a partner at Kennyhertz Perry and a former enforcement attorney at the Commodity Futures Trading Commission (CFTC). The CFTC’s 2020 approval of Kalshi as a designated contract market was a key inflection point, signaling that event-based contracts could operate within the federal derivatives framework. “That matters enormously to institutional participants,” he said.
As a result, major financial and betting firms have moved into the space, and platforms such as Polymarket and Kalshi have become mainstream venues for wagering on political decisions, court rulings, economic policy and cultural events.
The spread of sports betting has also normalized wagering on outcomes, lowering psychological and political barriers to prediction markets, even as regulators distinguish them from gambling. Early adoption by crypto-native traders also helped seed liquidity. “They’re comfortable with event-driven risk, binary outcomes and trading markets that don’t map cleanly onto equities or commodities,” Perry said.
The simplicity of the “bets” on these platforms – basically putting money on whether or not an event will actually occur — belies the complexity of the still-developing prediction-market ecosystem. Supporters argue it functions like a derivatives market, dominated by traders and large positions, while critics contend it more closely resembles gambling shaped by headlines and rapid turnover. Either way, by harnessing “the wisdom of crowds,” these markets have proven far more accurate at predicting real-world events than traditional opinion polls. In fact, a 2008 study found that compared to 964 polls over five U.S. Presidential elections since 1988, the Iowa Electronic Markets’ crowdsourced prediction was closer to the eventual outcome 74% of the time, and the advantage persisted for both long-term and short-term forecasts.
The market is much bigger than it used to be
The volume boom has been driven by a surge of capital flowing into prediction markets. Individual traders are no longer the only participants. “Now you have large hedge funds, institutional money, a lot of monetary input into these markets that they haven’t seen before,” said Perry.
Weekly trading volume on Polymarket and Kalshi rose from about $50 million in June 2024 to nearly $4 billion by January 2026, according to Dune Analytics. App installs for Polymarket climbed to more than 400,000 and Kalshi’s to more than one million by the end of January 2026, according to Sensor Tower.
As trading activity increased, venture and strategic capital followed: Kalshi’s valuation increased from $2 billion in June to $5 billion, according to company announcements, and Intercontinental Exchange (ICE) agreed to invest up to $2 billion in Polymarket.
Events are turned into tradable contracts
Each prediction market starts with a simple question about the future. For example: Will the Federal Reserve cut interest rates in March 2026? Or will the Supreme Court rule in favor of Trump’s tariffs?
“It turns events into monetized potential, meaning that you can sit and think about whether or not something will happen and try to make money on it,” Perry said.
For each question, people can buy one of two options: “yes” or “no.” Think of these like tickets. A “yes” ticket pays out $1 if the event happens. If it doesn’t, you lose the money you paid for the ticket.
There is no bookmaker setting the odds. Instead, people trade these tickets with each other on an exchange. If a lot of people think an event will happen, more buyers rush to the “yes” side, and the price goes up. If confidence fades, the price falls.
That price is the key. A “yes” ticket trading at 40 cents means the market thinks there is about a 40% chance the event will happen. A price near 80 cents suggests traders think it is very likely.
Where the money flows and why it matters
Trading on these markets is concentrated in a few categories, led by sports and politics, with far less activity elsewhere.
“These prediction markets are moving much quicker than what the government can regulate,” said Perry. “They want to have rules and guidance to make sure people are following all the same rules and it’s a fair playing field, but they’re just behind.”
He compared the situation to the early days of cryptocurrency markets, which expanded rapidly before clear rules were in place.
“The first phase was the Wild West,” Perry said, adding that regulators stepped in only after major abuses emerged — a pattern he expects to repeat as prediction markets continue to expand.
Others argue that enforcing market integrity may be even harder this time.
William Berg, a legal analyst for DayTrading.com, said preventing insider trading on prediction markets is “virtually impossible” without extreme measures.
“When it comes to event options, it becomes almost impossible to know all potential insiders for all events,” Berg said. The use of anonymous accounts and crypto payments only adds to the difficulty.
He noted that insider trading is typically detected only when traders place unusually large positions.
For now, the money keeps flowing while key trading rules and oversight remain unsettled. “It will likely be an uncertain market for a while,” Perry said.
