What are event contracts? How they work, who regulates them

An event contract is a financial contract whose value depends on whether something happens: a rate decision, an election result, a game, a weather reading. The CFTC describes them as typically structured as swaps, often based on a yes-or-no question, with a fixed payout — usually $1 — and an expiration, either at a set time or when the event concludes (cftc.gov).

If you have read what a prediction market is, you already know the product: “prediction market” is the venue, “event contract” is the instrument traded on it — and the term the law and the exchanges’ rulebooks use.

The price of a YES contract is the market’s estimate of the probability, in cents. A contract trading at 70¢ says the market puts the event at roughly 70%. If you buy at 70¢ and the event happens, the contract settles at $1 and you make 30¢ before fees; if it does not, it settles at zero and you lose the 70¢. The NO side mirrors it at about 30¢.

You do not have to hold to the end. On an exchange you can sell the contract at the current price before settlement — to lock in a gain or cut a loss — which is the main practical difference from a bet slip. How to read contract prices and YES and NO prices go through the arithmetic, and binary, scalar and categorical contracts covers the variants that pay on ranges or several outcomes.

Legally, an event contract is a derivative, like a future or an option: it derives its value from something else, here the outcome of an event. Economically it behaves most like a binary option — a fixed payout or nothing — which is why prediction markets vs options is the closest comparison.

Against a sportsbook the difference is who you trade with. The CFTC states that regulated exchanges and brokers offering event contracts “do not take a side of the trade”: you buy from and sell to other users, and the venue earns a fee rather than a margin built into the odds. Prediction markets vs sportsbooks sets out what that changes in practice.

Event contracts are governed by the Commodity Exchange Act. Section 5c(c)(5)(C), added by the Dodd-Frank Act in 2010, lets the CFTC find a contract contrary to the public interest if it involves unlawful activity, terrorism, assassination, war, gaming, or similar activity the Commission defines by rule — and a contract so found may not be listed (7 U.S.C. § 7a-2(c)(5)(C)). CFTC Regulation 40.11 turns that into a prohibition on registered exchanges and a 90-day review the Commission can open on a new contract (17 CFR 40.11).

An exchange normally lists a new contract by self-certifying that it complies with the law, or by asking the CFTC for approval. Only a CFTC-designated contract market may list event contracts to the US public — see what the CFTC is for the regulator itself.

They are not new. The CFTC’s own timeline starts with the Iowa Electronic Markets in 1988 and a staff no-action letter for them in 1992; in 2004 the Commission approved HedgeStreet as the first designated contract market offering binary options — the exchange later renamed Nadex and, after its 2022 purchase, Crypto.com’s (cftc.gov).

The federal position moved quickly this year. On 4 February 2026 the CFTC withdrew the event-contracts rule it had proposed in 2024 — which would have barred political contracts — and its staff withdrew a September 2025 advisory on sports contracts (release 9179-26). On 12 March it opened an advance notice of proposed rulemaking on prediction markets, with comments due by 30 April (release 9194-26).

On 2 April 2026 the CFTC sued Arizona, Connecticut and Illinois over their actions against designated exchanges, asserting exclusive federal jurisdiction (release 9206-26). On 10 June it proposed amendments to Regulation 40.11 setting out how it would decide, contract by contract, whether one involving an enumerated activity — sports included — is contrary to the public interest (release 9249-26).

The states have not accepted the federal view, and several have orders or lawsuits against sports contracts in particular. Which states, and against whom, is tracked in are prediction markets legal in the US? and on the US availability page.

The main US routes, each reviewed with its legal entity and fees: Kalshi, a designated exchange with the widest range of categories; Polymarket US; Interactive Brokers ForecastTrader, whose “Forecast contracts” are listed on ForecastEx — an exchange that says it passes the interest earned on collateral to its members through an “Incentive Coupon” (forecastex.com); FanDuel Predicts, with contracts listed by CME Group; and the sports-focused Novig and ProphetX.

For a ranked view, see the best prediction markets in the USA and the best prediction market apps; for two venues side by side, Kalshi vs ForecastTrader and Kalshi vs Polymarket US.

Three things decide whether a contract is worth its price beyond your view of the event. The fee on the size you trade — schedules differ more than headline rates suggest (fees and the true cost of a trade). The depth of the book, since a thin market moves against a large order (liquidity and spreads). And the settlement rule — the source, the deadline and who decides a disputed result (how a prediction market resolves). US tax treatment is unsettled; see event-contract taxes in the US.