Prediction market platforms Kalshi and Polymarket have seen a pronounced rise in trades that their compliance systems have marked as suspicious so far this year, reflecting both growing investor appetite for event-driven wagers and fresh enforcement challenges for the venues.
According to sources familiar with the matter, Kalshi has investigated and flagged more than 400 suspicious trades since the beginning of the year - a figure that is more than double the number of trades probed by the firm in the whole of last year. One of those sources said some of the flagged trades were reported to the U.S. derivatives regulator, the Commodity Futures Trading Commission, but did not provide further specifics. The CFTC did not immediately respond to a request for comment.
Polymarket has likewise experienced a notable increase in trading flagged as suspicious since the start of the year, a separate source said, without providing detailed figures. Both platforms have attributed part of the rise to the larger volume of activity they are handling as their user bases and notional trading levels expand.
Identifying illicit or improper trading in prediction markets presents unique challenges compared with traditional equity markets. "In the world of corporate insider trading it is often relatively easy to identify the parties with access to material nonpublic information who might trade in violation of the law," said Joseph Grundfest, a Stanford Law School professor and a former U.S. Securities and Exchange Commission commissioner. "But equivalent data is often very difficult or impossible to collect in connection with some prediction markets."
Volumes on these platforms have surged in recent months. Kalshi said its annualized trading volumes have more than tripled in the past six months to $178 billion. Data compiled by Dune Analytics show that Polymarket’s combined monthly notional trading volumes across its offshore exchange and U.S. platform reached roughly $10.3 billion in April, up from about $3.8 billion in the same month a year earlier.
As trading has accelerated, both platforms have moved to add restrictions intended to prevent illegal activity. Among the steps taken is a rule change to bar federal employees from placing trades on political campaigns for which they work. Polymarket has also removed some war-related contracts following public scrutiny, and both firms have highlighted that wagers based on confidential information or illegal tips are prohibited.
The legal and regulatory status of prediction markets remains contested. The CFTC contends these venues should fall under its remit as derivatives markets, while some states are staking out authority of their own in this area. In March, the commission began the process of developing regulations specific to prediction markets, and CFTC Chair Michael Selig has told lawmakers the agency will pursue insider trading aggressively.
High-profile enforcement examples have underscored the risk of well-timed trades. A U.S. Army soldier was charged with using confidential information to win $400,000 on Polymarket by betting on the removal of ousted Venezuelan President Nicolas Maduro, according to public reporting cited by sources. Kalshi in April banned three U.S. congressional candidates for what it described as "political insider trading."
Experts say the mix of large potential payouts and comparatively narrow information channels can make prediction markets attractive to those with access to inside information. "If someone has insider information, they might be way more inclined to act on it on prediction markets than on equity markets," said Charles Martineau, a professor at the University of Toronto’s business school.
Other observers emphasize the economic logic that draws traders to these venues. Vincent Gregoire, a professor at HEC Montreal, noted that prediction markets allow participants to bet directly on outcomes rather than on market reactions to news, which can reduce certain kinds of risk compared with traditional trading.
Both Kalshi and Polymarket are relatively young companies. Kalshi was founded in 2018 by Massachusetts Institute of Technology classmates Tarek Mansour and Luana Lopes Lara. Polymarket launched in 2020 by Shayne Coplan as a crowdsourced forecasting experiment during the pandemic and has since evolved into an event contracts exchange generating billions of dollars in monthly trades.
Investor demand has pushed up valuations for the startups. Kalshi recently completed a $1 billion funding round that valued the company at $22 billion, a more than tenfold increase in valuation in under a year. Separately, a source familiar with Polymarket’s discussions said the company has held talks to raise fresh capital at a valuation of $15 billion.
The spike in suspicious trades has come amid other well-timed bets in related markets. Reporting has highlighted instances of traders placing profitable wagers, for example, on falling oil prices in the run-up to a major Iran-policy announcement by the Trump administration.
Platforms are responding as scrutiny intensifies from lawmakers and regulators. Along with prohibitions on certain classes of trades, firms say they have strengthened monitoring and compliance procedures to detect potential insider activity. Yet experts warn that the inherent opacity of some information flows in prediction markets will make enforcement and detection difficult in many cases.
Regulatory outcome remains uncertain. The jurisdictional contest between the CFTC and state regulators, together with continuing questions about enforcement capability and market design, leaves prediction markets in a period of heightened attention. What is clear from the recent activity is that investor interest is strong and that both platforms and regulators are racing to adapt.
Summary
Prediction market platforms Kalshi and Polymarket have reported a substantial increase in suspicious trades during a period of sharply rising volumes. Kalshi has flagged more than 400 suspicious trades since the start of the year and reported some to the CFTC. Polymarket has also seen a marked uptick in flagged trades. Both firms have tightened trading rules and compliance measures as the CFTC moves to clarify its regulatory approach and lawmakers scrutinize insider trading risks.
Key points
- Kalshi has flagged over 400 suspicious trades since the start of the year, more than twice its total from last year.
- Kalshi’s annualized trading volumes have more than tripled in six months to $178 billion; Polymarket’s monthly notional volumes reached roughly $10.3 billion in April versus $3.8 billion a year earlier.
- Regulatory focus is growing - the CFTC has begun crafting prediction market regulations and has signaled intent to prosecute insider trading aggressively.
Risks and uncertainties
- Enforcement complexity - Detecting insider trading in prediction markets can be more difficult than in equity markets due to limited visibility into who holds material nonpublic information; this affects regulatory and compliance efficacy across financial and political betting markets.
- Jurisdictional uncertainty - Ongoing disputes over whether prediction markets fall under CFTC or state oversight create regulatory ambiguity that could affect platform operations and market participants in derivatives and event-driven trading spaces.
- Reputational and legal exposure - High-profile allegations and prosecutions, such as an Army soldier charged with using confidential information to win $400,000 on a prediction market and bans of congressional candidates, pose risks to platform credibility and may lead to tighter restrictions impacting trading activity.