Prediction markets are taking the world by storm. These online betting platforms allow users to trade “yes-or-no” contracts tied to whether a specific event will occur by a certain date.
The growth of the industry has been nothing short of explosive. Monthly trade volumes in November 2025 exceeded $13 billion, up from $100 million in early 2024. Already this year, markets have broken new weekly records.
American behemoths Polymarket and Kalshi are the dominant prediction market platforms. But there are also dozens of smaller sites.
Here, we explain how these markets work, why they are controversial, and how they are regulated.
How prediction markets work
At their most basic, prediction markets allow users to trade contracts that pay out if a stated outcome occurs.
An intuitive type of prediction market contract would be a sports bet: Will the Toronto Blue Jays win the World Series?
Someone who thinks the Jays will win would buy the “Yes” side of the contract.
If an event is considered likely to occur, the “Yes” side of the contract becomes more expensive, and the “No” side less expensive.
For example, if the Jays were heavily favoured to win the World Series, a “Yes” contract might cost $0.80 and would pay the contract buyer $1 if the Jays did win. If the Jays were to then lose, the bettor who purchased the “No” contract for $0.20 would be paid $1.
On traditional sports betting platforms, the house sets the odds and bets against the individual. In prediction markets, prices are set by the market itself, and the platform runs the exchange rather than taking sides.
While sports betting is now the leading betting category for prediction markets, they are also used to place bets on all manner of future events, including politics, entertainment and corporate transactions.
Why supporters take prediction markets seriously
Proponents of prediction markets say the contracts provide an accurate picture of people’s beliefs — more accurate, even, than polls, which measure stated beliefs.
Proponents also note that prediction markets aggregate information from many participants, including amateur and professional forecasters as well as subject matter experts. This aggregated information is reflected in a single price, which is easy to interpret. For example, if a Blue Jays “Yes” contract is trading at $0.80, that means market participants believe there is an 80 per cent chance of the Jays winning.
The markets also never close, allowing prices to adjust continuously as information changes.
These features have made prediction markets attractive for forecasting elections, economic indicators and policy outcomes.
Why critics are uneasy
Despite these potential benefits, critics have multiple concerns about how prediction markets operate and the incentives they create.
One concern is insider trading — that people with non-public or privileged information could profit from future events that affect the public. For example, a member of Parliament with inside information could place a bet on Polymarket about the likelihood of Canada and the U.S. securing a trade deal. The MP would be in a conflict of interest, potentially compromising her decision-making on trade policy.
A related concern is manipulation. Because some prediction markets can be thinly traded, coordinated buying or selling can push prices in misleading directions and affect the underlying events themselves by influencing public narratives and decision-making.
If, for instance, a political candidate’s odds of winning an election rise on a prediction market, journalists and voters could interpret the move as a sign of increased popularity and momentum, when perhaps it is a result of bettors deliberately manipulating the market.
There is also the question of whether certain outcomes should be tradable at all. Contracts that place bets on violence, conflict or political instability raise significant ethical and policy questions. While the platforms insist they are merely reflecting probabilities, some worry these markets will influence outcomes, rather than merely forecast them.
How are prediction markets regulated in the U.S.
In the United States, the federal Commodity Futures Trading Commission has authorized some prediction market platforms to operate in the country. It regulates these platforms as “event contract” exchanges rather than gambling sites.
At the state level, these platforms’ status is contested. Some U.S. states prohibit online gambling, and have taken action to prevent prediction markets from operating in their jurisdictions.
U.S. policymakers are also introducing measures to address potential conflicts of interest, such as proposed legislation to bar federal officials from trading on prediction markets related to their official duties.
How are prediction markets regulated in Canada?
There is no enabling legislation, court rulings or regulatory decisions explicitly permitting prediction markets to operate in Canada.
A 2017 ruling by the Canadian Securities Administrators (CSA), an umbrella regulatory council for the provinces and territories, banned the sale of short-term, yes-or-no contracts that it classified as “binary options.”
In 2025, Ontario’s provincial securities regulator determined that Polymarket’s event contracts violated the CSA order and were therefore illegal.
“These prediction markets like Polymarket really do seem to fit that definition of a binary option, because there’s typically a short time period, and there’s a binary outcome,” said Matthew Burgoyne, a partner at Osler LLP who leads the firm’s digital assets section.
No other provincial securities regulators have weighed in on whether the CSA’s 2017 ruling applies specifically to prediction markets like Polymarket, making it unclear whether these platforms are allowed to operate in other provinces.
“It’s a fractured system in that each province and territory has its own securities act and securities regulator,” said Burgoyne. “We don’t have an equivalent to the [Commodity Futures Trading Commission].”
Federal politicians have so far shown no signs that they plan to address the ethical dilemmas prediction markets create.
Bloc Quebecois MP Luc Thériault is so far the only member of a parliamentary ethics committee to call for prediction market bets to be included in the federal ethics framework, Canadian Affairs previously reported. Such a move would effectively ban some public officials from trading on prediction markets while in office.
What comes next
Prediction markets are expanding while governments are grappling with declining trust in institutions and the growing financialization of everyday life.
For policymakers, the challenge is reconciling a new form of speculation with existing legal and financial frameworks. Possible options range from outright prohibition to securities or gaming regulation to full licensing.
Each choice carries trade-offs. Blocking platforms may push activity underground. But the absence of rules risks consumer harm and political backlash from those skeptical of the line between forecasting the future and buying it.
