On the Kalshi order book, a contract on whether the Federal Reserve cuts rates at its next meeting trades in cents. Buy YES at 62 cents; if the Fed cuts, the contract settles at a dollar and you keep the 38 cent spread. If they hold, it settles at zero and the 62 cents is gone. Nothing about that trade looks like a bet in the legal sense. It is booked, cleared and reported as a derivative, on an exchange that answers to the same regulator that oversees oil futures and interest-rate swaps.
That is what an event contract is, and why the term matters. It is the label US law uses for a binary financial instrument whose payoff depends on whether a real-world event happens. The label is not cosmetic. It determines which regulator has jurisdiction, which platforms can list the product, and whether US residents can trade it without breaking any state gambling statute. For anyone trying to understand the American prediction market landscape, the word "contract" is doing the heavy lifting.
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The mechanic underneath the label
Strip away the legal wrapper and the shape is simple. An event contract is a binary claim: it pays out $1 if the specified event resolves YES, and $0 if it resolves NO. The price at any moment sits between those two extremes, and that price is the market's implied probability of the outcome. A contract trading at 30 cents implies roughly a 30% chance the event happens. Traders can buy or sell either side of the market, close their position before resolution, or hold to expiry.
The pricing mechanic is identical to what you see on Polymarket or any offshore prediction market. What differs is the plumbing behind the trade. On a CFTC-regulated exchange like Kalshi, the contract is a legally defined derivative, positions are held in a US brokerage-style account, and settlement happens through a designated clearing organisation. The trader still just clicks buy. The regulator cares about everything downstream of the click.
Why the US built a separate category
The US does not have a single national gambling regulator. Sports betting, casino gaming and lotteries are regulated state by state, which is why the map of where you can legally place a sports bet looks like a patchwork. Financial derivatives are the opposite: they fall under federal jurisdiction, and specifically under the Commodity Futures Trading Commission.
Event contracts were slotted into that federal derivatives framework. The Commodity Exchange Act, the statute the CFTC administers, gives the agency authority over commodity futures, options and swaps, and includes provisions for contracts on "events" that meet certain economic-purpose tests. Kalshi built its business by getting the CFTC to designate it as a full exchange, formally a Designated Contract Market, in 2020. That designation is what lets Kalshi list binary contracts on things like inflation prints, weather, and election outcomes without asking each individual state for a gambling licence.
If you want the fuller picture on how that federal-versus-state tension actually plays out, our guide to how CFTC regulation shapes state-level access walks through the mechanics.
What sits inside the wrapper
Walk through the Kalshi markets list and the range is wider than most people expect. Economic contracts: monthly CPI prints, Fed decisions, jobs reports, GDP releases. Weather contracts: whether the temperature in a specific city exceeds a threshold on a specific day. Political contracts: election outcomes, cabinet appointments, legislative votes. Sports contracts, added more recently. Cultural and corporate contracts too, from box-office numbers to product launches.
Each one is structured the same way. A precisely defined yes/no question, an unambiguous resolution source (a government release, a scoreboard, a court filing), and a fixed expiry date. Ambiguity is the enemy of a derivatives contract, because someone has to be paid a dollar at the end, and there can be no argument about who. Our guide to how prediction market resolution actually works covers why that clarity is a design constraint, not a nice-to-have.
What an event contract is not
Rhetorical question worth asking: if it pays out based on an event, isn't it just a bet with a different name?
Legally, no. Culturally, it is complicated. The CFTC's view is that a properly listed event contract is a derivative used for hedging or price discovery, in the same category as a wheat futures contract or an interest rate swap. Critics, including several state attorneys general and a number of gambling regulators, argue that a binary contract on whether a specific team wins a specific game is functionally identical to a sports bet, no matter what the federal wrapper calls it.
That argument is playing out in court. In August 2026, a federal ruling let Utah enforce its anti-gambling laws against Kalshi's sports contracts, and Kalshi was denied an injunction, the eighth state where the platform has run into that wall. Connecticut had Kalshi's injunction bid denied around the same time and is pursuing a lawsuit. Massachusetts has an order signalled. New Jersey went the other way earlier in 2026, with the Third Circuit siding with Kalshi in April. The federal-versus-state fight over sports event contracts specifically is unresolved and, on current form, likely to stay unresolved for a while.
For a cleaner comparison to a licensed sportsbook operating under state gambling law, see our piece on how Kalshi and DraftKings represent two different regulatory models.
The history that got us here
Event contracts as a distinct US product category are newer than most people assume. Academic prediction markets like the Iowa Electronic Markets have existed since 1988, but they run under narrow no-action letters and cap trading at $500 per participant. PredictIt operated under a similar academic no-action letter from 2014, tied to Victoria University of Wellington. That arrangement has since changed: the market was transferred to a new operator, the Prediction Market Research Consortium, in July 2025, and its position no longer rests on the original university exemption in the way it did for its first decade.
Kalshi was the first venue to seek and receive a full CFTC exchange designation aimed squarely at event contracts. That happened in 2020. The tougher fight came over political contracts. In September 2024, a US district court ruled in Kalshi's favour on the question of whether it could list contracts on congressional election outcomes, and the DC Circuit denied a stay in early October 2024, which meant Kalshi went into the November 2024 US election with live political markets on its books. That was a genuine inflection point for the category.
Polymarket sits in a related but different position. It settled with the CFTC in January 2022 for $1.4 million over listing event contracts to US users without registration, blocked US access, and has more recently rebuilt regulated US access through a separate CFTC-registered entity. Our guide to how Polymarket's US access works after the QCEX deal covers that structure in detail.
The practical takeaway for a US trader
If you are a US resident and you want exposure to a prediction-market-style contract, event contracts on a CFTC-registered exchange are the legally straightforward route for most product categories. Economic, political and weather contracts on Kalshi have not been subject to the same state-level challenges that sports contracts have. Whether that stays true is a live question. Sports contracts are where the legal risk is concentrated, and access to them varies by state depending on where the litigation currently stands.
Tax treatment is the other question new traders ask, and it is genuinely unsettled. The IRS has not issued specific guidance on event contracts, and practitioners disagree on whether gains should be treated as gambling winnings, as capital gains, or under Section 1256 rules that apply to certain regulated futures. Different advisers reach different conclusions. This is one of the areas where reading the platform's tax documentation and, if the sums are meaningful, talking to a tax professional is worth the fee. Our overview of the broader tax picture for prediction market traders in the UK and US walks through why the answer is not simple.
iPredicta indexes event contracts across the major prediction market venues, including Kalshi and Polymarket, and surfaces the same question priced on multiple platforms where it exists. The point is to let a reader see what the market thinks, without needing to log in to five different exchanges to check. Regulated event contracts are the growth end of that market, and the category we track most closely.
Frequently asked questions
Is an event contract the same as a prediction market?
Event contract is the US regulatory term for the binary financial instrument that trades on prediction markets. In practice they are the same product with a different label. The distinction matters because the label determines the legal wrapper: an event contract listed on a CFTC-registered exchange like Kalshi is treated as a derivative under federal law, not as a gambling product under state law. Offshore prediction markets like Polymarket historically listed the same economic structure without the US regulatory registration, which is what led to the CFTC settlement in January 2022. If you see "event contract" in the US, it almost always signals a CFTC-regulated venue.
Are event contracts legal in every US state?
Non-sports event contracts on CFTC-registered exchanges are broadly available across the US, but sports event contracts specifically have run into state-level challenges. A federal ruling in August 2026 let Utah enforce its anti-gambling laws against Kalshi's sports contracts, making Utah the eighth such state. Connecticut had a Kalshi injunction bid denied around the same time and is suing. Massachusetts has signalled an order. New Jersey went Kalshi's way in April 2026 at the Third Circuit. The federal-versus-state question over sports contracts specifically is unresolved. Economic, political and weather contracts have not attracted the same litigation.
Who regulates event contracts in the US?
The Commodity Futures Trading Commission, the same federal agency that regulates commodity futures, options and swaps. Event contracts sit within the CFTC's jurisdiction under the Commodity Exchange Act, which gives the agency authority over derivatives whose payoff depends on a defined event. A venue that wants to list event contracts to US traders must be registered with the CFTC as a Designated Contract Market. Kalshi received that designation in 2020. Because event contracts are federal derivatives rather than state-licensed gambling products, they sit outside the state-by-state framework that governs sports betting and casino gaming, which is the source of both the category's reach and its ongoing legal fights.
How are event contract winnings taxed in the US?
The honest answer is that it is not settled. The IRS has not issued specific guidance on event contracts, and there are three live frameworks that different practitioners apply: gambling winnings, ordinary capital gains, or Section 1256 treatment that applies to certain regulated futures. The prevailing professional interpretation among some derivatives practitioners is that CFTC-regulated event contracts could fall under Section 1256, but that is an interpretation, not law. Different advisers reach different conclusions. Kalshi issues some tax documentation to its users, but the form and coverage depend on the trading activity. If the sums are meaningful, this is the sort of question worth putting to a tax professional rather than assuming.
What is the difference between an event contract and a binary option?
Both pay out a fixed amount if a specified condition is met and zero otherwise, so the payoff structure is nearly identical. The difference is regulatory and cultural. Binary options, as a retail product, have a long history of fraud and are heavily restricted or banned in most major markets, including the UK by the FCA. Event contracts on CFTC-registered exchanges are structured, cleared and reported as derivatives, with defined resolution sources and exchange-supervised trading. Our guide to why one is regulated and the other isn't covers the mechanics of the split. The short version: same shape, different plumbing, very different legal treatment.