Prediction Markets Are Forcing Brokers to Rethink Licensing

TL;DR: Prediction markets hit $51B in sector volume in 2025 and are tracking toward $240B in 2026, but the regulatory picture is murkier than the revenue numbers suggest. Event contracts structurally resemble binary options — products regulators in Europe and the UK spent years restricting — and in many jurisdictions, they may fall under gambling law rather than financial market regulation. Brokers need to resolve licensing exposure before committing to entry strategies, not after.

A $51B Market With a Classification Problem

Prediction markets have moved from a niche curiosity into a legitimate volume category in under two years. Sector volume hit $51B in 2025. Robinhood customers traded 8.8 billion event contracts in Q1 2026 alone. Kalshi recently overtook Polymarket as the largest platform and doubled its valuation to $22B. Bernstein projects the total market could reach $1T by 2030.

That growth is pulling in mainstream brokers. Plus500 entered as an event contracts clearing partner. IG Group’s CEO confirmed internal discussions about building event-based products. CME Group announced a partnership with FanDuel in August 2025 to launch event contracts for retail customers. The institutional and retail infrastructure is converging on the same space at the same time.

But none of that volume resolves the core problem: event contracts do not have a clean regulatory home in most markets. Whether they are classified as derivatives, prediction instruments, or gambling products determines what license a broker needs — and that classification varies by jurisdiction. For operators running compliant CFD or forex operations in Europe, that ambiguity is not a minor footnote. It is a go/no-go decision factor.

Event Contracts vs. Binary Options: Structure Matters for Regulators

Jon Light, Senior Director of Product Management at Devexperts, draws a careful distinction between event contracts and binary options — but acknowledges regulators may not always honor it. Both formats share the same basic payoff structure: a binary yes/no outcome with a fixed payout. The difference is what they reference.

Binary options typically reference financial instruments — whether a price closes above or below a level. Event contracts reference real-world outcomes: elections, central bank rate decisions, sports results, economic releases. That distinction matters for how platforms build them and how risk is managed, but it does not automatically change how regulators classify them.

“In many jurisdictions, these products would likely fall under gambling or betting regulations rather than traditional financial market regulation,” Light told Finance Magnates. “Meaning firms may need to operate under gambling licenses depending on the structure of the offering.”

For brokers holding FCA, BaFin, or CySEC authorization, operating under a gambling license is not a parallel track — it is a separate regulated entity, separate compliance infrastructure, and in some cases, a separate corporate structure. That is not a technology problem. It is a legal architecture problem that has to be solved before a product goes live. Operators evaluating entry should run a full regulatory and marketing audit across all target jurisdictions before committing budget to infrastructure.

Three Entry Models and What Each One Costs You

Brokers entering prediction markets are following one of three operational paths, each with different licensing implications, capital requirements, and liquidity exposure.

The first model is direct connection to regulated venues. Retail brokers and trading apps plug into platforms like Kalshi to access liquidity and market infrastructure without operating it themselves. This is the fastest path to market and offloads the heaviest compliance burden to the venue operator. The tradeoff is margin and brand control — you are distributing someone else’s product.

The second model is white-label infrastructure. Providers like Devexperts launched event-based trading infrastructure in November 2025, and most brokers already have the technical foundation to integrate it. This gives operators a branded product without building derivatives systems from scratch. The regulatory exposure, however, sits with the broker operating the product — not the infrastructure vendor.

The third model is proprietary build. Larger exchanges and firms with existing derivatives expertise build their own systems for full control over pricing, liquidity, and product design. This is the highest-cost, highest-control option. It also carries the most direct regulatory accountability.

For forex and CFD operators specifically, white-label entry looks attractive on paper. But the licensing question does not disappear just because the technology is pre-built. Operators running paid acquisition campaigns for event-based products need to know whether those ads can legally run in target markets before the first dollar goes to media spend.

The Liquidity Paradox Operators Must Solve

Technology integration for event contracts is, by most accounts, straightforward. The harder operational problem is liquidity — and it has a structural paradox baked into it.

Trading activity in prediction markets spikes sharply around discrete events: elections, central bank decisions, major sports outcomes. Order books thicken before settlement, then go thin immediately after. Market makers face the specific risk of being “picked off” by traders reacting to breaking news faster than quotes can update. The defensive response — widening spreads — degrades the retail experience and drives participation down.

A Chainalysis report described this as a “liquidity paradox”: platforms need sophisticated traders to keep prices accurate, but sophisticated traders are exactly the participants who exploit thin markets during high-volatility windows, which drives out retail liquidity. The feedback loop compounds quickly.

Light frames it directly: “Liquidity management becomes more important, as trading activity can surge rapidly around key events and then disappear just as quickly.” Operationally, that requires robust pricing systems, market surveillance, settlement logic, and explicit manipulation protections — especially around politically sensitive events where the incentive to front-run news is highest.

For operators who have built iGaming audience acquisition programs, this event-driven traffic pattern is familiar. Sports betting and casino operators manage similar demand spikes around major events. The risk management parallels are real, which is part of why iGaming-licensed entities may be better positioned to enter prediction markets than CFD brokers who have never dealt with event-concentrated exposure.

What This Means for High-CAC Verticals

Prediction markets sit at an intersection that affects multiple operator categories: forex and CFD brokers, iGaming and sports betting operators, and crypto platforms that have already been running event-based products informally through decentralized venues like Polymarket.

For forex broker acquisition teams, the entry question is whether prediction markets represent a product extension that retains existing CFD traders or a separate acquisition funnel requiring different creative, compliance, and targeting. The answer varies by platform, but the audience overlap between active CFD traders and prediction market users is real — Robinhood’s 8.8 billion contracts in a single quarter confirms retail demand exists at scale.

Crypto operators running crypto platform growth programs already have audiences familiar with binary-style outcome markets. Polymarket’s user base is largely crypto-native. If prediction markets move toward gambling classification in key jurisdictions, crypto operators with existing gaming licenses may have a structural advantage over CFD brokers who do not.

For iGaming operators, prediction markets are a product category they can plausibly absorb. An operator already holding gambling licenses in regulated markets, running precision audience targeting for sports betting, has the compliance infrastructure and the event-driven liquidity management experience to enter prediction markets faster and more cleanly than a derivatives broker building that capability from scratch.

The near-term market structure, as Light sees it, will be a hybrid: “embedded offerings within existing venues, alongside a few dedicated platforms.” That means operators who delay building the licensing and compliance infrastructure now will be competing against venues that have already solved it when the market matures. Waiting is not a neutral position in a category growing at this rate.

What to Do Before Prediction Markets Become Mandatory Consideration

The window for methodical entry is still open, but it is narrowing. Sector volume is projected to nearly quintuple year-over-year. Institutional players — CME Group, IG Group, Plus500 — are already positioning. The brokers that move now will help shape the regulatory framework; those that wait will inherit whatever rules the early movers negotiated.

Practical steps for operators evaluating entry: map the licensing requirements in your primary markets first, not last. Understand whether your current authorization covers event contracts or whether a parallel gambling license is required. Audit your existing audience data to determine whether your current traders overlap with prediction market users — and build acquisition modeling before committing to infrastructure spend. Operators managing complex acquisition programs across regulated verticals benefit from working with teams that understand both the compliance constraints and the performance mechanics of AI-assisted lead qualification at scale.

Prediction markets are not a product category to evaluate casually. The volume numbers are real. The regulatory uncertainty is also real. Operators that treat the two as separate problems will resolve neither efficiently.

Originally reported by Finance Magnates, May 2026.