Prediction markets have gone from niche polling experiments to a serious competitor in modern finance. The 2024 U.S. election proved they could command attention faster than traditional polls, and retail trading platforms turned them into a familiar product almost overnight. Since then, companies such as Kalshi, Polymarket, Robinhood, CME, and Nasdaq-linked initiatives have pushed event contracts deeper into the financial mainstream. Exchange executives and investors have begun treating them less like novelty wagers and more like a legitimate new derivatives category.
Monthly trading volume grew from under $100 million in early 2024 to more than $13 billion by late 2025, with roughly $47 billion in global 2025 trading volume and double-digit-billion-dollar valuations for major platforms. The rise of prediction markets is no longer just a political story but a platform facilitating prophecy through market conviction. In the optimistic view, prediction markets function as high-frequency price-discovery engines, aggregating dispersed information into tradable probabilities that investors, companies, and policymakers can monitor in real time. That makes them useful not only for speculation but also for hedging event risk tied to elections, interest rates, regulation, trade policy, weather, and geopolitics.
Recent academic work using transaction-level data from Polymarket's 2024 presidential market found that these markets react sharply to political shocks, for example, a 10% jump for Trump after the failed assassination attempt. But the same feature that makes them informative also makes them vulnerable. If insiders or politically connected traders possess non-public information, the market becomes less a "truth machine" than a wealth transfer from uninformed participants to informed ones. The CFTC has flagged insider-trading concerns, particularly after suspiciously well-timed trades around major policy and military developments.
Regulation is now the decisive variable. As of early 2026, the CFTC is asserting exclusive derivatives jurisdiction over prediction markets, has launched an advance notice of proposed rulemaking, and says it has full authority to police manipulation and insider trading in event contracts. State regulators and lawmakers are pushing back, arguing that many of these products are functionally indistinguishable from gambling, commonly seen in sports and politically sensitive markets.
The legal landscape has veered in the industry's favour as of late when courts blocked the CFTC from halting Kalshi's election contracts. But Congress is now debating bills that would prohibit contracts tied to war, terrorism, assassination, and outcomes that insiders could plausibly control. The most likely outcome is not the disappearance of prediction markets but their bifurcation: regulated, surveillance-heavy products will continue migrating toward mainstream finance, while the most controversial contracts face tighter restrictions or outright bans. If regulators can write durable rules without crushing liquidity or trust, prediction markets could become a permanent forecasting layer woven into the fabric of modern finance.
Sources: Reuters, CFTC
Photos: Unsplash
Written by: Ariff Azraei Bin Mohammed Kamal
