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Prediction Markets Have an Insider Trading Problem. Are They Still Worth the Gamble?
By Pete Grieve MONEY RESEARCH COLLECTIVE
As Americans pour money into Kalshi and Polymarket, regulators are scrambling to crack down on insider trading — and convince everyday bettors they’re safe to use.
A press briefing cut suspiciously short. A long-shot bet on the former Venezuelan president’s downfall made just hours before his capture. A flood of trades from brand-new accounts predicting a ceasefire with Iran.
As prediction markets like Kalshi and Polymarket explode in popularity in the U.S., they are also facing growing allegations of insider trading.
The scrutiny is intensifying as state officials, members of Congress and the media call out what they see as suspicious activity in prediction markets, where users buy and sell contracts forecasting event outcomes. The potential insider trades in question are typically big, well-timed bets that rake in winnings.
But are these coincidences or crimes? And if you’re one of the millions of users trading on prediction markets, should you be worried that insiders are getting rich at your expense?
“Prediction markets, in the way that they’re constructed, provide a lot of opportunity for insider trading,” says Richard Warr, a finance professor at N.C. State University. “The granularity and the variety of these possible contracts means that the number of people who potentially have prior information about the outcome is massive.”
Take, for instance, a Polymarket user who made hundreds of thousands of dollars from bets that then-Venezuela President Nicolás Maduro would lose power, about half of which were placed the evening before his Jan. 3 capture. The trades drew heavy scrutiny and led to speculation that the Polymarket bettor was a military insider.
How can a regular Joe ever hope to beat someone like that? Koleman Strumpf, a Wake Forest University economics professor who studies prediction markets, says you don’t necessarily need to worry about it. Strumpf says there are very few cases with “smoking gun” evidence of insider trading. In his opinion, major events — such as marquee sports matches, major elections or even strikes in the Iran war — are likely safe for everyday people to trade.
“If the issue is some important geopolitical issue … the set of people who know that, I would argue, is pretty small. I don’t think they’re trading on these sites,” Strumpf says. “If you got caught, that would be the end of your career.”
New federal lawsuits and bills in Congress are targeting prediction markets and the bets that have been called implausible. Here’s what you need to know about the developing efforts to crack down.
The latest: Prosecutors meet with Polymarket as lawmakers demand guardrails and bans
Under the Trump administration, prediction markets have largely gotten a green light from the Commodity Futures Trading Commission, the regulator that oversees derivative markets (like financial futures and options). But in recent weeks, lawmakers have introduced at least 10 bills in Congress to regulate or restrict prediction markets. Several of them, such as the Public Integrity in Financial Prediction Markets Act, are focused specifically on insider trading.
Most of the bills have come from Democrats. So far, only a few Republicans have backed legislation to rein in prediction markets, like Sen. John Curtis, R-Utah, who wants to ban sports contracts.
Prediction markets have also been hit with dozens of federal lawsuits filed by state attorneys general and regulators. The CFTC, for its part, is suing three states that have tried to block or regulate these markets. Legal experts say a case challenging the legality of prediction markets could eventually reach the Supreme Court.
Last month, multiple media outlets reported that officials in the U.S. attorney’s office for the Southern District of New York met with Polymarket executives about insider trading rules. CNN’s report said prosecutors are “exploring” the issue but did not allege wrongdoing. That office did not respond to Money’s request for comment.
Kalshi, Polymarket and newer entrants into the prediction markets space hope they can brush off these threats.
Despite the wave of attempts to crack down, prediction markets are still growing rapidly, and several now claim availability nationwide.
“I would be very surprised if these markets were banned. From everything I can tell, these markets are here to stay,” says Stephen Piepgrass, partner at Troutman Pepper Locke and an expert on gaming law.
The CFTC has argued that prediction contracts are swaps or options, so the federal government — not individual states — has the authority regulate them. But limitations may be coming on which types of events can be traded. Piepgrass says sports prediction markets are potentially more vulnerable to legal challenges than other types (like those focused on elections or the economy) because sports trading has been a main target of state lawsuits.
Why prediction markets are vulnerable to insider trading
Some experts argue that insider trading is a feature, not a bug, of prediction markets.
While prediction markets are essentially betting platforms for average traders, they can provide intelligence to companies, governments and the public, showing implied probabilities of difficult-to-forecast events. As the theory goes, users with in-depth knowledge or information will place trades when they think contracts are mispriced, helping to correct probabilities.
The original purpose of prediction markets was to “try to get information out into the marketplace by having people literally put their money where their mouth is,” Piepgrass says.
That intel can be valuable far beyond satisfying curiosities. For example, an oil company might use prediction markets to monitor geopolitical events that could affect oil prices and its bottom line.
“In many ways, the whole idea of insider trading is a little odd to apply to a system that’s meant to reward people with more information,” Piepgrass adds.
But there is a difference between trading based on sharp insights and cheating. These platforms say they have zero tolerance for the latter.
Under Kalshi’s latest insider trading protections, announced in February, politicians are blocked from trading on their own campaigns, and athletes are banned from trading on games in their leagues, among other screening features.
Still, the NFL appears to be concerned, sending letters to prediction markets on March 29 asking them to not offer certain event markets, including trades around the upcoming NFL Draft in Pittsburgh, or broadcaster mention markets, which let users trade “yes” or “no” contracts tied to announcers saying specific words.
“We’re trying to stay as far as we can from some of those sorts of inside information wagers that could exist in this space,” Jeff Miller, an executive vice president for the league, told ESPN.
CFTC Chairman Michael Selig said in a video shared on X March 30 that the agency takes “very seriously our responsibility to reject contracts that are easily susceptible to manipulation,” adding that the CFTC plans to listen to sports leagues about boundaries on injury contracts and other markets that could be exploited.
Selig also said in a separate interview that prediction markets will be the “first line of defense” against insider trading on the platforms, adding that the CFTC and Department of Justice “will police in the back end.”
Insider trading monitoring systems — to the extent they exist — are going to be put to the test in 2026, as Warr says insider trading is likely even more common in prediction markets than financial markets. The stock market is regulated by the Securities and Exchange Commission, and there’s a robust system in place for investigating insider trading that often leads to prosecutions.
With predictions, though, “it’s not even clear that the people who are making the trades are located in the U.S.” Warr says. “How do you prosecute somebody in another country who’s accessing a prediction market?”
Kalshi denies widespread insider trading
In an ad campaign released in late March, Kalshi aims to explain “what we are and what we aren’t,” spokesperson Elisabeth Diana said in an email to reporters. “There’s been some confusion and conflation between us and our competitor, so we’re calling those distinctions out.”
The ads, which appear on bus shelters and building banners in the U.S., include copy declaring, “KALSHI BANS INSIDER TRADING Because Kalshi is a federally regulated U.S. exchange.”
At an in-person Kalshi conference in New York on March 27, COO Luana Lopes Lara reportedly said 10 to 15% of Kalshi’s team members are focused on market integrity, which includes insider trading prevention. She expressed confidence that Kalshi knows who the bad actors are, saying, “We know exactly where they work, what they do,” according to an X post by Wired‘s Kate Knibbs.
Previously, the company said that it had opened more than 200 investigations in the past year.
Experts say it’s in Kalshi’s interest to strongly police insider trading because it gives the public confidence in fair play, which supports its ability to make money. However, the volume of trading and the rapid growth of prediction markets makes actually cracking down on integrity a challenge.
“Often what you see with these new technologies — the back office, compliance, regulatory stuff takes a little while to catch up,” N.C. State’s Warr says.
The pervasiveness of insider trading right now remains largely unknown.
“Nobody really knows how widespread it is,” Warr says.
Lawmakers call out ‘suspicious’ prediction market activity
In a few concrete cases, prediction markets have identified insider trading and taken action, such as a case involving a former editor for YouTuber Mr. Beast and another in which an Israeli military reservist allegedly exploited insider information.
Other cases are murkier, with various parties pointing fingers without complete proof of wrongdoing. In one viral example, White House Press Secretary Karoline Leavitt suddenly ended an early January press briefing about 30 seconds before it had run for 65 minutes — a cutoff line that Kalshi users could trade on — leading to outrage on social media.
A few weeks later, Sen. Elizabeth Warren, D-Mass., and about 40 colleagues in Congress sent a letter to the CFTC and the Office of Government Ethics stating that Leavitt’s move “reinforc[ed] concerns that government officials sometimes have control over events on prediction markets.”
Addressing the incident on X, Kalshi responded, “The total volume on this market was $3,400. The largest position on NO on this market was $186. Claims of insider trading are baseless.”
In other examples of “possible insider trading in prediction markets by federal employees,” the Democrats’ letter cites the Polymarket activity ahead of the U.S. military operation that captured Maduro. In total, those well-timed bets netted the individual over $400,000.
“More recently, it has been reported that a number of users engaged in suspicious trades relating to the invasion of Iran and the death of Ayatollah Khamenei (sparking national security concerns about signaling impending attacks), and on whether former DHS Secretary Kristi Noem would be fired,” the letter reads.
A recent CNN article claimed a trader’s impressive run of bets on Iran war event markets netted nearly $1 million with a 93% win rate. In the article, the analytics company Bubblemaps called the activity “pretty suspicious,” while CNN wrote that it ultimately “isn’t clear” if the individual was an insider.
“It is quite challenging to figure out whether something is insider trading,” Strumpf says.
That makes this fast-evolving, high-stakes issue even harder to solve.
“Typically what people do is they’ll say, ‘Oh, here’s somebody who made a big bet and made a lot of money,’” he adds. “Well, people make big bets and make a lot of money all the time, and they don’t necessarily have inside information.”
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Pete Grieve is a New York-based reporter who covers personal finance news. At Money, Pete covers trending stories that affect Americans’ wallets on topics including car buying, insurance, housing, credit cards, retirement and taxes. He studied political science and photography at the University of Chicago, where he was editor-in-chief of The Chicago Maroon. Pete began his career as a professional journalist in 2019. Prior to joining Money, he was a health reporter for Spectrum News in Ohio, where he wrote digital stories and appeared on TV to provide coverage to a statewide audience. He has also written for the San Francisco Chronicle, the Chicago Sun-Times and CNN Politics. Pete received extensive journalism training through Report for America, a nonprofit organization that places reporters in newsrooms to cover underreported issues and communities, and he attended the annual Investigative Reporters and Editors conference in 2021. Pete has discussed his reporting in interviews with outlets including the Columbia Journalism Review and WBEZ (Chicago's NPR station). He’s been a panelist at the Chicago Headline Club’s FOIA Fest and he received the Institute on Political Journalism’s $2,500 Award for Excellence in Collegiate Reporting in 2017. An essay he wrote for Grey City magazine was published in a 2020 book, Remembering J. Z. Smith: A Career and its Consequence.