Is Kalshi Legal? What Every US Trader Needs to Know in 2026
Kalshi's legal status explained — CFTC regulation, state availability, and what it means for your money.
It is a fair question. You see an exchange where you can bet on whether it will rain tomorrow or whether the Fed will cut rates, and your first instinct is to wonder whether you are about to do something illegal. The prediction market space has a complicated legal history in the United States, and the line between “regulated exchange” and “offshore gambling site” is not always obvious to newcomers.
Here is the short answer: Kalshi is legal for US residents in most states. It is the first and only prediction market exchange that operates as a CFTC-regulated designated contract market (DCM). That is not marketing language — it is a specific legal designation that carries real weight.
This article covers exactly what that regulation means, how it protects your money, where Kalshi is available, and how it compares to the legal gray areas that other platforms operate in.
CFTC Regulation: What It Actually Means
The Commodity Futures Trading Commission is the federal agency that oversees derivatives markets in the United States. It regulates futures exchanges like the CME, options exchanges, and swap execution facilities. When Kalshi received its DCM designation in 2020, it became subject to the same regulatory framework that governs the largest derivatives exchanges in the world.
In practical terms, this means several things for you as a trader:
Segregated Customer Funds
Kalshi is legally required to hold customer funds in segregated accounts, separate from the company’s own operating capital. If Kalshi were to face financial difficulties or even go bankrupt, your deposited funds are protected and cannot be used to pay the company’s creditors. This is the same protection that applies to futures trading accounts at regulated brokerages.
This is not a theoretical distinction. In the crypto world, we have seen multiple examples of platforms that commingled customer funds with company assets — FTX being the most infamous. When those companies collapsed, customers lost everything. That cannot happen with a CFTC-regulated entity in the same way.
Market Integrity Rules
Every contract that Kalshi lists must be approved by the CFTC or self-certified through a regulatory process. Resolution criteria must be clearly defined in advance using objective, verifiable sources. Kalshi cannot retroactively change how a market resolves, and there are formal dispute resolution processes if something goes wrong.
The exchange is also subject to surveillance requirements to detect market manipulation, wash trading, and other forms of abuse. These are the same standards applied to traditional derivatives markets.
Auditing and Compliance
Kalshi undergoes regular audits and must maintain certain capital reserves. It files reports with the CFTC and is subject to examination by the regulator. This is the boring, unsexy side of regulation, and it is exactly why regulation matters.
How Kalshi Is Different from Gambling
This is a question that comes up constantly, and it is worth addressing directly. From a regulatory and legal perspective, trading on Kalshi is classified as trading event contracts on a regulated derivatives exchange, not gambling.
The distinction is not just semantic. Gambling is regulated at the state level and typically involves games of chance offered by a licensed house that sets the odds. Kalshi operates an exchange model — it does not take the other side of your trade. Every contract is matched between two market participants, and Kalshi earns revenue from transaction fees, not from traders losing.
This classification has important implications:
- Federal preemption. Because Kalshi is regulated at the federal level by the CFTC, state gambling laws generally do not apply. You do not need to be in a state with legal sports betting to trade on Kalshi.
- Tax treatment. Gains and losses on Kalshi are treated as financial instruments for tax purposes, not as gambling winnings. This affects how you report income and whether you can deduct losses. More on this below.
- No house edge. The exchange does not profit when you lose. It charges a flat fee per contract regardless of the outcome. Your counterparty is another trader, not the house.
That said, the CFTC has not approved every type of event contract. Kalshi’s attempt to list contracts on congressional elections was initially blocked by the CFTC before a court ruling in 2024 allowed political event contracts to proceed. The regulatory landscape is still evolving, and new contract types sometimes face legal challenges before they are approved.
State Availability
While Kalshi’s CFTC designation provides broad legal authority to operate across the United States, there are a small number of states where the platform is currently unavailable. As of early 2026, Kalshi is accessible in the vast majority of US states, but residents of a few states may be restricted.
The specific list of restricted states can change as regulatory discussions evolve, so check Kalshi’s website for the most current list. When you sign up, the platform verifies your state of residence during the KYC (Know Your Customer) process and will inform you if you are in an ineligible state.
Importantly, this is not because trading on Kalshi is “illegal” in those states in a criminal sense. It is typically a matter of Kalshi not yet having resolved specific state-level regulatory questions. The trend over the past two years has been toward broader availability, not less.
Fund Protection: What Happens If Something Goes Wrong
One of the most important questions any trader should ask about a platform is: what happens to my money if this company disappears?
With Kalshi, the answer is straightforward:
- Your funds are in segregated accounts at custodian banks, not on Kalshi’s balance sheet.
- CFTC oversight means there is a regulatory body responsible for ensuring customer protection standards are met.
- Withdrawal rights are protected. You can withdraw your funds at any time via ACH, and Kalshi cannot prevent you from accessing your money outside of standard regulatory holds (like pending trade settlement).
Compare this to unregulated platforms where your funds are held in the company’s crypto wallet or bank account with no legal separation. If that company gets hacked, sued, or simply decides to shut down, your recourse is limited. On a CFTC-regulated exchange like Kalshi, you have a legal framework protecting your capital.
Tax Implications
Since Kalshi is a regulated exchange, your trading activity generates tax obligations that are reported to the IRS. Here is what you need to know:
1099 Reporting
Kalshi issues 1099 forms to traders who meet the reporting thresholds. This means the IRS knows about your trading activity — you cannot ignore it.
Capital Gains Treatment
Gains on Kalshi event contracts are generally treated as capital gains. The specific classification — whether they fall under Section 1256 (which provides the favorable 60/40 long-term/short-term split) or are treated as standard short-term capital gains — is an area where the tax law is still catching up to the product.
The practical advice is simple: keep detailed records of every trade, and consult a tax professional who understands derivatives. We have a more detailed guide on Kalshi taxes and reporting if you want to dig deeper.
Deductible Losses
Unlike gambling losses (which can only be deducted against gambling winnings), trading losses on a regulated exchange may be deductible against other income, depending on your tax situation and how you classify your trading activity. This is a meaningful advantage over platforms that are classified as gambling.
How Kalshi Compares to Unregulated Platforms
The prediction market space includes several platforms that operate outside of US regulatory oversight. Polymarket, for example, is a crypto-native platform that settled with the CFTC in 2022 and subsequently blocked US users from its interface. It offers deeper liquidity on many markets and charges lower fees, but it lacks the regulatory protections that Kalshi provides.
Here is a practical comparison:
| Feature | Kalshi (Regulated) | Unregulated Platforms |
|---|---|---|
| Regulator | CFTC | None |
| Fund protection | Segregated accounts | Platform-dependent |
| KYC required | Yes | Varies |
| US legal status | Legal in most states | Gray area / restricted |
| Tax reporting | 1099 issued | Self-reported |
| Dispute resolution | CFTC process | Platform-dependent |
| Deposit method | Bank transfer, debit | Crypto (USDC) |
Neither model is inherently “better” — it depends on your priorities. If you are a US-based trader who wants legal certainty, fund protection, and clean tax reporting, Kalshi is the clear choice. If you prioritize global access, deeper liquidity, and lower fees, and you are comfortable with the regulatory uncertainty, unregulated platforms have their appeal.
For a complete comparison of platforms, see our guide to the best prediction market platforms.
Common Concerns Addressed
”Could Kalshi get shut down?”
Theoretically, the CFTC could revoke Kalshi’s DCM designation, but this would require a formal regulatory action — it is not something that happens overnight. Kalshi has spent years and millions of dollars building its regulatory framework. The trend in 2025-2026 has been toward expanding what prediction markets can offer, not restricting them.
”Could event contracts be banned?”
Individual contract types can be challenged. The CFTC blocked Kalshi’s congressional election contracts before a federal court overruled the agency. The regulatory environment is evolving, but the overall trajectory supports the growth of event contracts as a legitimate financial product.
”Am I going to get in trouble for trading?”
No. Trading on a CFTC-regulated exchange is legal. You are not breaking any federal or state laws by buying and selling event contracts on Kalshi. The platform handles all regulatory compliance, KYC verification, and tax reporting on its end.
The Bottom Line
Kalshi is legal, regulated, and about as safe as a prediction market can be in the United States. The CFTC designation is not a marketing gimmick — it is a specific legal framework that provides real protections for your funds and your rights as a trader.
If you are new to prediction markets and want to understand how they work, Kalshi is the safest on-ramp for US traders. The regulatory overhead means slightly higher fees and a narrower market selection compared to unregulated alternatives, but what you get in return — legal certainty, fund protection, and clean tax reporting — is worth the tradeoff for most people.
The question is not really “Is Kalshi legal?” The question is whether you are comfortable trading on platforms that are not.