Short answer: In the United States, a prediction-market trade is most legally risky when you use or tip material, nonpublic information that you obtained through a duty of trust or confidence—such as an employment relationship, nondisclosure agreement, government role, or similar relationship—and you knew, or were reckless about, that breach. The Commodity Futures Trading Commission (CFTC) has said that its anti-fraud rule can reach this misappropriation theory in commodity, futures and swap markets, including event contracts the agency treats as swaps. An informational advantage by itself is not the complete test, and a platform’s own rule may prohibit a trade even when proving a statutory violation would be difficult.
This is U.S.-focused legal-risk information, not an individualized legal opinion. Contract language, your relationship to the information source, the venue, and the jurisdiction can change the analysis. If you may have traded on confidential workplace or government information, consult a lawyer experienced in commodities or white-collar matters before discussing the facts with anyone else.
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What the CFTC means by insider trading in an event contract
CFTC Enforcement Director David I. Miller described the agency’s misappropriation theory in remarks at NYU Law School. In his formulation, liability requires three elements: “(1) possesses material non-public information; (2) misappropriates that information by trading on or tipping in breach of a duty of trust and confidence owed to the source of the information; and (3) does so with scienter.” Read the full remarks at the CFTC’s published speech.
The theory is different from a simple rule that bans anyone who knows more than the market. The crucial questions are how the information was obtained, whether the trader owed a duty to its source, and whether the trader used or passed it along while aware of the wrongful circumstances. The CFTC says Commodity Exchange Act Section 6(c)(1) and Regulation 180.1 can apply to this conduct in commodity, futures and swap markets. Whether a particular prediction contract falls within that description is a contract- and venue-specific question.
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Material and nonpublic information
Information is generally “nonpublic” when it has not been broadly disseminated to the market. “Material” means information important enough that a reasonable trader could consider it significant in deciding whether to buy or sell, or that could substantially affect the contract’s expected value. The legal analysis is fact-specific: a private scheduling change, unreleased injury report, confidential vote count, or internal decision may be material in one market and insignificant in another.
A rumor seen in a public forum, a published government report, an open data set, or your own analysis of public facts is not automatically misappropriated information. Public availability and independent analysis matter, but they do not create a universal safe harbor. A contract may define prohibited conduct more broadly, and a trader can still violate a duty by using information received in confidence even if fragments of it later appear in public.
The duty to the source
Under the misappropriation approach, the duty normally runs to the person or organization that entrusted the information, not only to other market participants. Examples that can create risk include an employment agreement, a nondisclosure agreement, a professional relationship, a team or league role, or a government position that limits use of nonpublic information. The existence and scope of a duty depend on the actual agreement, job responsibilities, policy language, and surrounding circumstances.
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Trading, tipping and scienter
The conduct can be direct trading or tipping. A person who passes confidential information to another trader can create liability if the tip breaches a duty; a recipient may also face risk when the circumstances give reason to know the information came through a wrongful breach. “Scienter” refers to the required state of mind under the applicable anti-fraud rule—typically intentional or reckless misconduct, rather than an innocent mistake. The precise showing depends on the claim and the facts.
When an informational edge is not, by itself, insider trading
Miller said that “you are absolutely entitled to trade on MNPI that you rightfully own.” His example includes a model built from public data or analysis that a trader independently created and owns. In practical terms, a trader who processes public polling, weather data, financial filings, or historical results is not automatically misappropriating someone else’s information.
That statement is not a blanket exemption. Ask whether the model incorporates confidential inputs, whether an employer or client owns the work, whether a contract or policy restricts use, and whether the specific venue imposes a stricter prohibition. A privately developed model can still be unusable if it embeds a confidential data feed or was created under a duty that limits personal trading.
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Use the following questions to identify legal and platform risk. They are a risk screen, not a legal test that can clear a trade.
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- Identify the exact contract and venue. Read the contract’s settlement language, eligible-trader rules, prohibited-conduct provisions, and reporting requirements. Confirm whether the venue is a CFTC-regulated designated contract market (DCM), another type of market, or an offshore service. The CFTC’s consumer guidance explains the agency’s role in prediction markets at its prediction-markets page.
- Classify the information. Write down what you know and where it came from. Separate information that is broadly public, information you independently generated from public facts, and information supplied privately about the event. If you cannot describe the source without revealing a confidence obligation, treat that uncertainty as a warning sign.
- Check for a duty to the source. Ask whether you received the information through employment, a nondisclosure agreement, a client engagement, a league or team role, a government position, or another relationship of trust. Review the written agreement and applicable workplace or agency policy; do not assume that a document’s silence authorizes personal trading.
- Check how the information will be used. Trading while relying on the information can be an issue even if the order is small or loses money. Tipping another person, posting a coded message, or arranging a trade for someone else can create separate exposure. Consider whether a reasonable person would understand that the information was provided for a limited purpose.
- Consider what you knew about the breach. Note any warning, instruction, confidentiality marking, or unusual request from the source. A claim that you did not know the information was restricted may be difficult to reconcile with messages, agreements, or circumstances showing you recognized the limitation.
- Check whether you can influence the outcome. A separate platform rule may bar you because you can directly or indirectly affect the event, even if you have no confidential information. Include authority over participants, access to a decision process, control of a media channel, or the ability to alter a measurable result.
- Preserve the decision record. Keep the contract version, public materials you relied on, your model inputs, order history, and relevant communications. Do not alter or delete records after a question is raised. If the facts involve an employer, agency, team, or investigation, obtain legal advice before making statements.
Influencing the underlying event is a separate red flag
Using confidential information is not the only concern. Trading while you can influence the event can undermine the contract’s integrity even when no confidential tip is proven. The CFTC’s February 2026 enforcement advisory described one candidate who traded a contract about his own candidacy and a YouTube-channel editor who traded contracts related to the channel while likely having advance knowledge. The agency treated the ability to affect the outcome and the access to advance information as serious conduct concerns.
Platform policies can therefore be stricter than the minimum elements of a misappropriation case. A person may be barred from a market because of a role, authority, or access that creates a conflict, without a court having first decided that the person possessed material nonpublic information or acted with scienter.
How the published Kalshi and Polymarket rules differ
The two policies below are examples, not a complete survey of prediction-market venues. Read the current rule for the specific contract before trading; policies and legal statuses can change.
| Question | Kalshi | Polymarket |
|---|---|---|
| Venue context | Kalshi contracts have been the subject of CFTC enforcement action involving a U.S. designated contract market. DCMs are subject to CFTC oversight, including surveillance, audit-trail and rule-enforcement obligations. | Polymarket’s market-integrity policy is a platform rule. The policy itself does not establish that every contract is a CFTC-regulated DCM product; jurisdiction and contract status must be checked separately. |
| Confidential information and tipping | The platform publishes an insider-trading policy. Its restrictions apply in addition to any legal duties and to the specific market’s rulebook. | The policy states: “You may not trade on any contract if you possess confidential information about the outcome of the underlying event, where using that information would violate a preexisting duty of trust or confidence you owe to another person or entity.” It is a platform policy, not a judicial holding. |
| Ability to influence the outcome | The published policy prohibits trading in relevant markets when a trader can influence the outcome, including situations covered by the market’s eligibility rules. | The integrity policy also addresses conflicts and trading by people who can affect the underlying event. Apply the wording to the particular contract and role. |
| Surveillance and records | For a CFTC-regulated DCM, federal rules require market surveillance, audit trails and enforcement of trading rules. The platform’s own descriptions are policy statements, not independent measurements of detection accuracy. | The policy may describe monitoring and integrity controls, but those descriptions do not prove how often conduct is detected or how a dispute will be resolved. |
| Possible consequences | CFTC or platform action can include disgorgement, monetary penalties, suspension, account restrictions or a ban, depending on the rule and proceeding. | Platform action can include restrictions or removal under the published terms; legal consequences depend on the contract, jurisdiction and facts. |
See the current policies at Kalshi’s insider-trading policy and Polymarket’s market-integrity policy. Neither page replaces the contract rulebook or legal advice.
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What the CFTC’s 2026 cases show—and what they do not
On February 25, 2026, the CFTC Division of Enforcement announced two Kalshi matters in an advisory. The figures are outcomes in those particular cases, not a standard fine schedule or a measure of how common insider trading is.
Candidate-trading case
The advisory reports a $2,246.36 financial penalty and a five-year suspension. The amount consisted of $246.36 in disgorgement and a $2,000 penalty. The trader was a candidate who traded a contract concerning his own candidacy. The agency’s description highlights both the potential ability to influence the event and the conflict created by trading on a market tied to the trader’s own campaign.
YouTube-channel editor case
The advisory reports a $20,397.58 financial penalty and a two-year suspension, consisting of $5,397.58 in disgorgement and a $15,000 penalty. The trader edited a YouTube channel and traded contracts related to the channel while likely having advance knowledge. The example illustrates why a person who controls, edits, schedules, or prepares information about an event may face restrictions even when the market is not a traditional securities market.
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Read the complete notice at the CFTC’s February 2026 advisory. It does not establish a market-wide prevalence rate. Unusual timing, high profits, or a concentrated position may trigger a review, but those patterns are not proof by themselves; investigators would look for evidence of access, a duty, use or tipping, influence, and the trader’s state of mind.
What happens when a trade is flagged
For a CFTC-regulated DCM, federal requirements include systems to surveil trading, maintain audit trails and enforce the exchange’s rules. A venue may request identity information, order records, communications or an explanation of the trader’s relationship to the event. The fact that a trade was profitable or unusual can explain why it was reviewed, but it does not establish a violation.
Possible outcomes range from no action, to a warning or account restriction, to disgorgement, a civil monetary penalty, suspension or a permanent ban. A platform may also refer conduct to the CFTC or another authority. The applicable contract, the venue’s procedures and the evidence determine what happens; there is no universal penalty table.
If you already made the trade
- Stop using the information. Do not place additional orders, close positions solely to conceal activity, or pass the information to anyone else.
- Preserve records. Save the contract, rule version, order confirmations, account notices, public sources, model files and communications in their original form.
- Review your obligations. Locate employment, nondisclosure, agency, team, league or client agreements that governed the information. Do not forward confidential material unnecessarily.
- Contact qualified counsel promptly. A lawyer familiar with U.S. commodities law or white-collar investigations can assess privilege, self-reporting, platform procedures and employment consequences. The right approach depends on the facts; do not assume that volunteering a narrative to the platform or employer is harmless.
- Respond accurately if contacted. Do not delete messages, create backdated notes, coordinate stories, or speculate about facts you do not know. Route substantive questions through counsel when appropriate.
Important limits on this analysis
This framework is for U.S. prediction-market and event-contract questions. It does not determine the law of another country, every U.S. state dispute, or every offshore platform. A contract’s classification, the venue’s registration, and the governing law can change which rules apply. The CFTC’s consumer materials, enforcement advisory, Miller’s remarks, and the platform policies linked above were reviewed on October 13, 2026; legal positions, litigation and platform terms can change after that date.
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Scan for outdated or missing drivers - takes under a minuteDriver Scan →Clear out junk files and repair common Windows errorsFree Scan →Fix the driver behind crashes, sound loss and screen glitchesFind Drivers →The safest conclusion is conditional: an informational advantage is not automatically insider trading, but trading or tipping on material nonpublic information obtained through a breached duty—or trading while able to influence the event—can create serious legal and platform risk. Only a fact-specific review of the information source, duty, conduct, contract and jurisdiction can determine what that risk means for a particular trade.
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