On a Tuesday in October 2023, a federal appeals court told the Commodity Futures Trading Commission that no, it could not block Kalshi from offering contracts on which party would control Congress. The CFTC had argued the contracts were too close to gambling. Kalshi argued they were derivatives, regulated under the Commodity Exchange Act, and therefore the agency's business to oversee but not to ban. The court agreed with Kalshi. And in doing so, it cemented a phrase that had been quietly building in the American lexicon for years.
That phrase is event contract. It is the legal, regulated, CFTC-blessed term for what most of the internet still calls a prediction market bet. The distinction sounds bureaucratic. It is not. It is the entire reason an American sitting in Ohio can legally trade on whether the Federal Reserve cuts rates in December, while the same person cannot legally place that wager at a sportsbook in the next state over.
The mechanic, stripped down
Picture a contract that pays exactly $1 if something happens and $0 if it does not. The price of that contract, anywhere between zero and one dollar, is the market's implied probability of the event occurring. Buy at 35 cents, the event happens, you collect a dollar. Buy at 35 cents, the event does not happen, your 35 cents is gone.
That is the entire structure. A binary, cash-settled derivative tied to a real-world outcome. The outcome can be almost anything that is objectively verifiable: a Fed decision, a jobs number, an election result, a hurricane making landfall, a film grossing more than a billion dollars. What matters legally is not the topic. What matters is the contract shape and the venue that lists it.
For a deeper walk-through of how those prices behave once trading starts, our guide to how prediction market odds work covers the mechanics of order books, implied probability, and why the price moves the way it does.
Why the term exists at all
Here is the bit that confuses people. Americans have always been able to bet on things. Sports, horses, casino games. So why invent a new label for trading on whether Powell raises rates?
The answer is jurisdictional. Sports betting in the US is regulated state by state, mostly under gaming commissions, and the legal landscape is a patchwork: legal in New Jersey, restricted in California, banned outright in Utah. Event contracts sit somewhere else entirely. They are regulated federally by the CFTC under the Commodity Exchange Act, the same statute that governs oil futures and interest-rate swaps. A federally regulated derivative trumps the state patchwork. If the CFTC says the contract is lawful, it is lawful in all fifty states.
That is why Kalshi pushed so hard for the term. Calling something a bet invites a state regulator. Calling it an event contract invites the CFTC. The semantic choice is load-bearing.
Kalshi, the test case
Kalshi launched in 2021 as the first CFTC-regulated exchange built specifically to list event contracts. Founded by Tarek Mansour and Luana Lopes Lara, the company spent years getting Designated Contract Market status, which is the same regulatory tier as the CME. That status is what lets Kalshi list contracts to US retail traders without running afoul of state gaming laws.
The early Kalshi catalogue was deliberately tame. Will GDP growth exceed 2% this quarter? Will the unemployment rate print above 4%? Will Congress pass the debt ceiling bill by a specific date? Economic and policy contracts that looked, felt, and traded like derivatives. The election contract fight came later, and it was the elections case that made event contracts a household phrase among traders.
For more on how the exchange itself works, the markets it lists, and the user experience, our Kalshi event contracts explainer goes deep on the platform.
What event contracts are not
Worth flagging what the category excludes, because the edges are where people get confused.
Event contracts are not sports bets, at least not officially. Whether sports outcomes can be listed as event contracts is one of the most contested questions in the space, with Kalshi pushing the boundary and several state attorneys general pushing back. The legal position is genuinely unsettled and the direction of travel changes every few months.
Event contracts are not Polymarket bets either, at least not from a US regulatory standpoint. Polymarket runs on crypto rails, is not CFTC-registered for US retail, and settled with the CFTC in 2022 over offering unregistered contracts to Americans. US users technically should not be on it, though enforcement has historically been light. If you want the long version of how those two venues stack up, our side-by-side comparison of Polymarket and Kalshi lays out the differences in regulation, fees, liquidity, and which markets each one wins on.
And event contracts are not insurance, even though they look a bit like it. Insurance requires an insurable interest. You cannot buy fire insurance on your neighbour's house. You can absolutely buy an event contract on whether Florida sees a Category 3 hurricane this season, even if you live in Arizona and own nothing in the path. That difference matters legally and economically.
Where the probability actually comes from
The price of an event contract is set the same way the price of any other listed derivative is set. By an order book. Buyers and sellers post bids and offers, the matching engine pairs them, and the last traded price is what gets reported as the market's implied probability.
This is genuinely different from a sportsbook. At DraftKings, the price you see is set by the book, adjusted to bake in a margin (the vig), and you are betting against the house. On Kalshi, you are trading against another user. The exchange takes a small fee on the trade, but it has no position in the outcome and no incentive to skew the price. The probability you see is what other traders are willing to pay, full stop.
That structural difference is why event contract prices are taken seriously as forecasting signals in a way that sportsbook lines mostly are not. There is a substantial academic literature, going back to the Iowa Electronic Markets in the 1990s, suggesting these prices beat polls and pundits more often than chance would explain.
The tax wrinkle Americans should know
Because event contracts are CFTC-regulated derivatives, they are taxed as derivatives. That has real consequences. Many event contracts on regulated US exchanges qualify for what the IRS calls Section 1256 treatment, meaning gains are taxed 60% as long-term capital gains and 40% as short-term, regardless of how long you held the position. That is a meaningfully better tax outcome than ordinary gambling winnings, which are taxed as ordinary income.
Not every event contract gets this treatment, and the rules are still being clarified by the IRS as the category grows. The point is just that the legal label changes the tax treatment, which is one more reason the semantic distinction between event contract and bet is not pedantry. For a fuller breakdown, see our explainer on prediction market tax treatment across the UK and US.
Why this matters for the average trader
So what does any of this mean if you just want to take a position on whether Trump pardons someone or whether the Lakers make the playoffs?
Practically: if you trade event contracts on a CFTC-regulated exchange, you are doing something legal, traceable, and tax-advantaged. If you trade the same outcome on an offshore book or an unregistered crypto platform, you are not. The contracts may look identical from the outside. They are not the same product from a legal standpoint.
The broader significance is that event contracts represent the first time American retail traders have had federally sanctioned access to a real-money market on non-financial outcomes. Whether that turns out to be a footnote or a structural shift in how the country processes information is still an open question. The trading volumes suggest it is at least more than a footnote.
iPredicta covers the event contract market closely, tracking which Kalshi markets are pricing in surprises, where the US and global venues diverge on the same question, and how the regulatory frontier is shifting. The goal is to help readers see the signal in the price, not just the price itself.
Frequently asked questions
Is an event contract the same thing as a prediction market bet?
Functionally yes, legally no. An event contract is the regulated, CFTC-supervised version of what people informally call a prediction market bet, and the distinction matters because it determines which laws apply. A bet placed at a sportsbook is governed by state gaming regulators. An event contract listed on a Designated Contract Market like Kalshi is governed by federal commodities law under the Commodity Exchange Act. The trade mechanics look almost identical to the user. The legal classification, the tax treatment, and the venue's obligations are entirely different. When American platforms talk about event contracts, they are deliberately invoking the federal derivative framework rather than the state gambling one.
Where can Americans legally trade event contracts?
The cleanest answer is Kalshi, which holds Designated Contract Market status from the CFTC and is available to US retail traders in all fifty states. A handful of other CFTC-registered venues exist, including some institutional-focused exchanges, but Kalshi is by far the most accessible for individuals. ForecastEx, owned by Interactive Brokers, also lists event contracts under CFTC oversight. Polymarket is not currently available to US retail traders following its 2022 CFTC settlement, though its status has been the subject of ongoing legal and political discussion. If a platform is not CFTC-registered and offers event contracts to Americans, it is operating in a grey zone at best.
How are event contracts different from sports betting?
The core difference is regulatory: event contracts are federal derivatives, sports bets are state-regulated gambling. That distinction shapes everything downstream. Event contracts trade on an exchange against other users, with prices set by an order book rather than a house. Sports betting is largely a book-versus-customer model with a built-in margin. Event contracts are taxed as derivatives, often with favourable Section 1256 treatment. Sports betting winnings are taxed as ordinary income. Whether sports outcomes themselves can be listed as event contracts is a contested live question, with Kalshi pushing into the space and several states pushing back. The legal answer is not yet settled.
Who regulates event contracts in the United States?
The Commodity Futures Trading Commission is the federal regulator. The CFTC oversees event contracts under the same Commodity Exchange Act that governs interest-rate swaps, oil futures, and other derivatives. To list event contracts for retail traders, an exchange must hold Designated Contract Market status, which involves rigorous capital, surveillance, and customer-protection requirements comparable to those imposed on the Chicago Mercantile Exchange. The CFTC has the authority to approve or block individual contracts, as it tried to do with Kalshi's congressional control market before losing in federal court. State gambling regulators do not have jurisdiction over CFTC-regulated event contracts, which is the legal foundation that lets these markets operate nationwide.
Can event contracts predict the future better than polls?
Often yes, though the gap is smaller than enthusiasts sometimes claim. Decades of academic work, starting with the Iowa Electronic Markets in the late 1980s, suggests that market-implied probabilities tend to outperform polling averages and pundit forecasts, particularly close to event resolution and on questions with active trading volume. The mechanism is that traders with skin in the game aggregate information faster and more honestly than survey respondents. The caveats are real: thin markets are noisy, manipulation is possible, and on long-horizon questions polls can sometimes hold their own. Our deeper comparison of prediction markets versus polls walks through where each one wins.