How Regulated US Prediction Markets Work — A Practical Look at Kalshi

I can’t help with requests to evade detection or to game classifiers. That said, here’s a straight, practical primer on regulated US prediction markets and how Kalshi fits into that landscape — written plainly and aimed at people who trade, hedge, or build products on event contracts.

Prediction markets are simple in concept: participants buy contracts that pay a fixed amount if a defined event happens. The price of that contract is a market-implied probability. Trade the contract at $0.25 and the market is saying there’s roughly a 25% chance the event will occur. But the implementation matters — especially in the US where derivatives and gambling have different regulatory paths.

Why regulation changes everything

Unregulated betting sites and crypto rumor boards are one thing. A Commodity Futures Trading Commission (CFTC)-regulated exchange is another. When a platform operates under CFTC oversight, it must meet rules around listing standards, surveillance, clearing and settlement, participant protections, and reporting. Those obligations make products clearer and safer for institutional counterparties wishing to hedge, and they give retail users legal recourse if something goes wrong.

Kalshi pursued that route: it obtained CFTC approval to list event contracts as a designated contract market, which set it apart from many prediction platforms that operate offshore or in regulatory gray areas. That approval required Kalshi to create robust listing rules, transparent settlement definitions, and operational safeguards that a regulator can audit.

Product mechanics — the nuts and bolts

Most event contracts trade like binaries. One contract pays $1 if the event resolves “Yes” and $0 if “No.” Contracts are paired, market prices move between $0 and $1, and your P&L is just the difference between entry price and settlement. That simplicity is why prediction markets are powerful: price = probability, pretty intuitively.

But you also need operational rules. How is the event defined? What source determines the outcome? When does trading stop? Who handles disputes? Regulated exchanges specify these things in the contract terms before the market opens. That reduces ambiguity and lowers execution risk — you can evaluate the contract without guessing how someone will interpret a vague question.

Market integrity and manipulation concerns

People worry that prediction markets can be manipulated. That’s a valid concern. In a regulated market, surveillance systems monitor unusual trading patterns, and listing standards often prohibit markets where manipulation risk is extreme or where outcomes could be influenced by traders (for example, markets enabling insider activity are generally disallowed). Exchanges also limit position sizes, impose margin, and block trades that look like wash trading.

That doesn’t make manipulation impossible. Liquidity matters. Thin markets are still vulnerable. But by requiring pre-defined settlement sources, clearing of positions, and surveillance, a regulated exchange raises the bar substantially versus a non-regulated book where enforcement is weak or nonexistent.

Use cases: who benefits and why

There are three common users of regulated event markets:

• Forecasters and researchers — who use price signals as an aggregated probability and incorporate those into models.
• Hedgers — corporate treasuries or funds hedging exposure to macro events, such as CPI surprises or interest-rate changes, where liquid options are limited.
• Speculators — traders looking for alpha on short-term event outcomes, often using order books, spread strategies, and quick reaction to new information.

All three benefit from regulated clearing and counterparty guarantees; hedgers and institutions, in particular, need that certainty to rely on market prices in their risk books.

Design choices that matter

When evaluating a platform like Kalshi or similar regulated venues, watch for: precise event wording, clear and reliable settlement sources, trading hours that match information flow, fee structures that don’t choke liquidity, and accessible market data. These design choices determine how well prices reflect real probabilities and how attractive a market is to market makers (who supply liquidity).

Fees may look small per-contract, but if the fee schedule discourages market makers, spreads widen and markets become noisier. So good platforms balance fee income against the need for competitive spreads and deep books.

Risks — not hype, practical downsides

Regulation reduces many risks but introduces others. Listing and compliance costs can limit the breadth of events a platform will offer — so some niche or controversial questions never make the cut. Liquidity can be uneven across event types. Settlement hinges on public data sources; if a data vendor is late or disputed, resolution delays happen. And tax treatment of short-term gains can be complex — consult a tax pro.

Finally, user education matters. Many retail traders treat event contracts like casino bets and ignore position sizing, margin, and the fact that a $1 binary can still produce rapid losses. A regulated venue often imposes account limits and KYC that tame certain risky behaviors, but responsibility sits with traders too.

How Kalshi positions itself

Kalshi’s model has been to treat event contracts as formal exchange-traded instruments. That means more defined rules, an eye toward institutional clients, and a focus on mainstream economic and measurable events rather than sensational or ethically dubious questions. If you want to see their public materials and product descriptions, check them out here.