So like, which is it, is insider trading expected, or are these just gambling sites that should be illegal in many jurisdictions?
No. Their defense is that they are a gamified platform for futures contracts and hence should fall under CFTC regulation.
The CFTC also cracks down on insider trading, but it took time for them to write regulations to catch up with prediction markets.
It is now a priority [0] and they have just started a paid whistleblower [1] programs specifically to catch insider traders within prediction markets.
[0] - https://www.lw.com/en/insights/new-cftc-enforcement-director...
[1] - https://www.whistleblower.gov/whistleblower-alerts/Insider_T...
I find prediction markets to be interesting on two fronts:
1) They like a really good way to determine the probability of something happening, which is interesting for events like elections
2) It provides an avenue for smart bettors to take advantage and sharpen their skill, whereas they get severely limited or banned from traditional sports books
However, it seems like all incentive structures for the markets and consumer behavior will steer these things to degenerate gambling.
N.B. it becomes a bit frustrating to talk about financial and regulatory things on this site because the level of knowledge is generally "I read some articles on social media about markets" level.
Additionally, the SEC and CFTC guidance on what digital asset can be treated as a security and what can be treated as a commodity was only released a couple weeks ago [0].
Stuff is changing rapidly so it's best to keep an experienced regulatory lawyer on retainer.
> N.B. it becomes a bit frustrating to talk about financial and regulatory things on this site because the level of knowledge is generally "I read some articles on social media about markets" level.
Yep. It is what it is.
[0] - https://www.morganlewis.com/pubs/2026/03/crypto-clarity-sec-...
That might be the defense. They are inherently designed to leverage insider trading though. I made a top level comment with links/resources that argues why.
But sometimes the answer is more difficult than it seems. Is a mid level military officer an insider? If you overheard a conversation on Capitol Hill are you an insider?
Second, the majority of prediction markets are predicting utterly mundane things like sports. The tiny number of news grabbing markets are not representative.
If you're asking about why prediction markets fall under the CFTC, this is actively evolving but generally prediction markets are considered to be under the CFTC because they can be used to hedge against events.
For example if you're trying to do business in Oman but you're worried about Iran tensions spilling over, you could take a Yes position on an Iran conflict bet as a hedge. You may lose business but can make some of it up in the hedge.
"Gambling" the concept legally is very complicated and has a lot to be understood, so I'd suggest doing some searching or LLM asking if you want an intro on philosophical definitions or the legal landscape.
(it's true that low level insiders might have limited influence on the actual outcome, but the current suspicion with prediction markets is that some of the participants do have that influence, or are being intentionally helped by people that can)
So now who are the non-expert outsiders and why would they bet? Outsiders who think they are experts but are wrong.
At most some low-level flunkie will get named and slapped on the wrist.
Short, casual reads
- https://jamaalglenn.substack.com/p/prediction-markets-were-d... - https://money.com/prediction-markets-insider-trading/
More academic?
- https://mason.gmu.edu/~rhanson/insiderbet.pdf AND - https://www.youtube.com/watch?v=4yZKGbq1YmA
Discussion on possible solutions that references the academic view
- https://www.dopaminemarkets.com/p/how-to-solve-insider-tradi...
Why should my tax dollars be spent on helping a bookie run their gambling business? Insider trading laws and prosecution in the financial markets makes sense, because the fair and impartial enforcement helps all of our economy, and allows capital to do its job investing in productive ventures.
These prediction markets are not that. They aren’t sources of investment for a productive enterprise, it is pure gambling.
Why should the US government spend money making sure people can gamble? If people want their gambling to be fair, they can pay for their own enforcement.
I like the idea of insider trading running rampant on these platforms. Once people realize that the other side of their bet knows the outcomes in advance, maybe they will stop betting their money on these platforms and they can just die.
Am I misunderstanding? It seems like two different statements he always conflates.
If it becomes a federal crime at some point, it will become illegal from that point — you can't prosecute people for acts committed before they were crimes.
The only way that this could be a federal crime right now is if the government starts prosecuting it under existing laws without any changes. I don't see that as likely.
Don't assume safety.
Edit - was curious:
https://en.wikipedia.org/wiki/Ex_post_facto_law
So maybe not?
I'd love a judicial scholar's input.
That way lies madness.
If the govt could do that, they could arrest anyone, anytime simply by making whatever they did yesterday retroactively illegal.
The caveat I added to my initial comment that you also mentioned was that they could try to find a relevant existing law and retrofit it, e.g. general securities laws, and say that this is a securities market and so this has always been illegal — but it's very unlikely and I doubt it would work. Far, far more likely that we pass explicit laws about this.
Nobody in this administration is going to be prosecuted no matter who is in power.
> The only way that this could be a federal crime right now is if the government starts prosecuting it under existing laws without any changes. I don't see that as likely.
Fully agree, especially since Kalshi just caught one of the editors of MrBeast's videos red handed (he was betting on the "What words will MrBeast say in his next video" market with 100% accuracy) and while Kalshi banned the guy the DOJ has shown 0 interest in doing anything with that.
If things like Kalshi and Polymarket are prediction markets, then, at least as far as the intrinsic concerns of the market itself are concerned, insider trading is a good thing; literally part of the point.
If they are instead how they function today, then insider trading is a game-breaking fairness issue, like having a device to read your opponents cards in a poker game, and then they're a real problem.
You can tell what these businesses think their platforms are for by how they handle these issues.
In every other case you get worse predictions. Since those who are predicting have to now construct their bets such that they know they can always get run over by an insider. So in the general case it reduces the ability of the predictors to push the market in the right direction, because they always have to risk manage the fact that someone out there might run them over with insider information.
The average person does not do this. People trade individual stocks all the time, despite every other market participant (banks, hedge funds, etc.) having better information and technology.
It's why institutions like Citadel pay for retail order flow. They know that retail traders don't have an edge and, if anything, often end up being negative signal.
I think there is still the debate to be had whether prediction market enable too much criminal activity and insider trading compared to traditional stock markets and therefore need to be limited for pragmatic reasons (i.e. the legal system can't keep up), but that's a different discussion.
slg•1h ago
mlmonkey•1h ago
bradleybuda•1h ago
[1] https://www.citizen.org/article/biden-doj-2024-corporate-cri...
trinsic2•10m ago
Just because there is less reports of corruption in the past by dems doesn't change anything. Corruption extends beyond parties, its not a political problem. Its a human problem.
I don't expect to see much change when the dems come back into power, albeit, it be less apparent and of a different nature, I.E more indiscriminate surveillance and less racial profiling ..
There is some kind of cultural thing going on that transcends the party's IMHO that's keeping this problem going.
slg•1h ago
mcmcmc•53m ago
lotsofpulp•32m ago
>people close to the administration.
slg•6m ago
I'm also not going to defend Congressional stock trading. I think it should be banned. But there are some differences about who is doing the trading/betting, what specifically they are trading/betting on, and what that information communicates to the public. There's a fundamental difference between a random staffer betting the US will attack Iran on a certain date which becomes public immediately compared to a Congressperson themselves buying stock in a weapon manufacturer in the leadup to an attack knowing the purchase won't be disclosed to the public for up to 45 days.
Like I said, I would be against both, but it's much easier to justify Congressional stock trading than the insider trading we see on these prediction markets. Afterall, it isn't like Congress is moving to remove all insider trading legislation, so there is some recognition of nuance here even if they give themselves more leeway than we would want.
chiefalchemist•24m ago
For example, given Nancy Pelosi’s effectiveness as an investor, she was effectively a highly successful day trader with a side hustle as a representative of her constituents.
Framing this as a Left v Right, is at best, naive.
morkalork•1h ago