Are Prediction Markets Gambling? Legal vs Functional Answer (2026)
Legally no — prediction markets are CFTC-regulated derivatives, not gambling. Functionally they share risk-of-loss with gambling, so trade carefully.
- Legality: derivatives classification is what makes Kalshi legal in all 50 states.
- Tax: ordinary-income treatment, not gambling tax — different reporting and different deduction rules.
- Self-exclusion: prediction markets currently lack the state-mandated self-exclusion programs that licensed sportsbooks provide. If you have a problem-gambling history, treat that gap seriously.
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The legal answer: no
Kalshi are CFTC-registered Designated Contract Markets — the same federal license class as the Chicago Mercantile Exchange. Federal courts have ruled that event contracts are derivatives, not gambling. State gambling laws don't apply to federally-regulated derivatives.
The functional answer: somewhat
From a behavior and risk standpoint, prediction-market trading shares features with gambling: variable rewards, fast feedback loops, social/competitive elements, and real risk of loss. Treat your bankroll the way a serious bettor would — set limits, never trade with money you can't afford to lose, and don't chase losses.
How the IRS sees it
Prediction-market profits are reported as ordinary income on Form 1040, not as gambling winnings on Schedule 1 line 8b. Kalshi issues a 1099 if you cross the federal reporting threshold. You can deduct trading losses against trading gains, but not against ordinary wage income.
Why this distinction matters for traders
- •Legality: derivatives classification is what makes Kalshi legal in all 50 states.
- •Tax: ordinary-income treatment, not gambling tax — different reporting and different deduction rules.
- •Self-exclusion: prediction markets currently lack the state-mandated self-exclusion programs that licensed sportsbooks provide. If you have a problem-gambling history, treat that gap seriously.
Responsible trading resources
If trading is affecting your finances or relationships, call the National Council on Problem Gambling at 1-800-GAMBLER or visit ncpgambling.org. The hotline serves problem trading and gambling alike.
Last reviewed by Catie Di Stefano on August 5, 2026. We re-verify market prices, polling, and citations on every update.
Frequently Asked Questions
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Sources & references
- 1.Commodity Futures Trading Commission — Event Contracts — CFTC.gov
- 2.CFTC Final Rule on Event Contracts — CFTC.gov
- 3.Kalshi wins court battle to offer election contracts — Reuters
- 4.National Council on Problem Gambling — 1-800-GAMBLER — NCPG
External links open in a new tab. We cite primary regulatory and major news sources where possible. Citations to trusted regulators (CFTC, SEC, IRS, NOAA, .gov, .edu) are dofollow; commercial outbound links are not endorsements.
Catie Di Stefano has spent 15 years working with online gambling across some of the most regulated and competitive gambling markets in the world.
Starting at Betsson Group in Malta in 2011, she has in recent years worked her way through VIP management, CRM, gamification and marketing leadership across European and North American operations. Catie was a licensed consultancy for Hard Rock Casino in New Jersey, where she held a DGE vendor license and owned the execution of the online CRM program from launch day in 2018.