Prediction market arbitration: how disputes get resolved

The short version

• A regulated US prediction market is a designated contract market (DCM), an exchange that the Commodity Futures Trading Commission (CFTC) registers and designates. Its disputes run on a CFTC-filed rulebook and the member or participant agreement you accept at sign-up.
• Core Principle 14, a federal standard every DCM must meet, requires each exchange to “establish and enforce rules regarding, and provide facilities for” alternative dispute resolution for market participants and intermediaries (7 U.S.C. 7(d)(14); 17 CFR 38.750).
• Two different disputes: an outcome or settlement dispute, decided inside the exchange against its filed rules, and a legal or contractual dispute, sent to arbitration under the rulebook or agreement.
• For a retail customer, a person who is not an eligible contract participant (ECP), meaning an institution or other sophisticated trader the Act defines, arbitration cannot be forced before a dispute arises except on the strict terms in Regulation 166.5 (17 CFR 166.5(b), (c)).
• The rulebooks route arbitration differently: ForecastEx conducts its arbitration under the National Futures Association (NFA) rules (Rule 802); Polymarket US sends disputes to binding arbitration in New York under its own Chapter 9, with the NFA providing regulatory services only, not arbitration (Rule 2.14); Kalshi uses its own arbitration panel (Chapter 10).
• Above the exchange sits the CFTC: a tip or complaint to the Division of Enforcement, and a reparations case where a CFTC registrant is involved. There is no independent appeal of a market’s outcome (cftc.gov/complaint; 7 U.S.C. 18(a)).^{1,2,4,5,8,11,13,14}

Prediction market arbitrage or arbitration, which do you mean?

Arbitrage is a trading tactic: buying the same outcome cheaper on one platform than it sells for on another. Arbitration is how a dispute between a trader and a platform gets decided. This piece is about the second.

The rest of this explainer sets out how a dispute with a regulated US prediction market is resolved, and the forums a trader can use. For the wider map of who decides what, see our guide to prediction market disputes.

What does US law require a prediction market to offer for disputes?

A CFTC-regulated prediction market must, under Core Principle 14, make rules for and provide dispute-resolution facilities for its participants and intermediaries. Core Principle 14 is section 5(d)(14) of the Commodity Exchange Act: the board of trade “shall establish and enforce rules regarding, and provide facilities for alternative dispute resolution as appropriate for, market participants and any market intermediaries” (7 U.S.C. 7(d)(14)). The CFTC restates it at 17 CFR 38.750, in Part 38 subpart O.^1,2

What “fair and equitable” means is spelled out in the acceptable practices at Appendix B to Part 38. A compliant customer procedure gives the trader an objective and impartial decision-maker; counsel at the party’s own expense; adequate notice, a chance to be heard and a prompt hearing; a prompt, written, final award that is “not subject to appeal within the designated contract market”; and notice of the fees and costs (Appendix B, Core Principle 14 (b)(1)(i) to (v)).³

Two limits matter for a retail trader. The procedures must be voluntary “for customers other than eligible contract participants”, directly or through another self-regulatory organisation (Appendix B, Core Principle 14 (a), (b)(2)). And a DCM may delegate the customer dispute-resolution function to another self-regulatory organisation or a registered futures association, provided it then treats that body’s decision “as if the decision were its own”, including enforcement (Appendix B, Core Principle 14 (b)(4)). That delegation clause is the hook the rulebooks use for the NFA.³

What kinds of disputes can a prediction-market trader have?

Two: a disagreement about how a market was resolved or a trade executed, and a legal or contractual dispute with the platform or another trader. They travel different routes, and most pages blur them.

An outcome or resolution dispute turns on the contract’s own terms, not on negotiation. An event contract here is a contract that pays out on whether a defined, verifiable event happens. On Kalshi the result is mechanical: the Expiration Value is the value of the underlying measure when the contract expires, and the Payout Criterion is the set of Expiration Values that pay out, so an Expiration Value inside it makes the Market Outcome YES rather than NO (Kalshi definitions). Resolution and settlement are distinct steps. A market resolves when that Market Outcome is fixed, and settles when payment is made, which Kalshi defines as “payment to Members who have the right to receive money pursuant to a Contract”, held until expiration (Kalshi definitions). A dispute can attach to either step. Who decides a contested outcome is in the outcome section below.¹¹

An execution dispute, a mishandled or wrongly rejected order, has its own track. Kalshi lets a member ask for a review, and if it finds no system error the member can appeal in writing to a Kalshi compliance officer, whose decision “will be final” within 10 days (Kalshi Rule 5.6(a) to (f)). A legal or contractual dispute, by contrast, goes to arbitration under the rulebook or agreement. For how a contested resolution is challenged, and for the offshore oracle model, see prediction market resolution disputes.¹¹

What do Kalshi, Polymarket US and ForecastEx actually say about disputes?

All three run arbitration off a CFTC-filed rulebook; they differ on whether arbitration against the exchange is mandatory and on which rules apply. Table A sets them side by side. Polymarket US here means the CFTC-regulated US venue operated by QCX LLC (d/b/a Polymarket US), separate from Polymarket’s non-US markets.^11,13,14

Kalshi (KalshiEX LLC) puts arbitration in Chapter 10. A member may “elect” arbitration of a claim against another member; the notice is filed within two years of when the claim arose; a claim under $5,000 is heard by one arbitrator and $5,000 or more by three; claims under $5,000 may be resolved without a hearing; each arbitrator follows the American Bar Association and American Arbitration Association Code of Ethics for Arbitrators, which Kalshi adopts; and the decision is final, not subject to appeal within Kalshi, and enforceable in any court (Rules 10.1(a), (d); 10.2(a), (b), (e), (j); 10.5(a), (d)). A dispute between a trader and Kalshi itself “will be settled in accordance with the procedures set forth in the Kalshi Rulebook”, under New York law (Member Agreement, Sections V(B) and XX).^11,12

Chapter 9 of the Polymarket US rulebook covers dispute resolution. Rule 9.1 sends disputes among participants to binding arbitration in New York: a single arbitrator if the parties agree, otherwise each side appoints one and those two pick a third, and the non-prevailing party bears the fees. Rule 9.2 sends claims against the exchange to binding arbitration in New York under the procedures in the Exchange Terms of Use, which it only defers to, so we do not invent the steps. Polymarket US has a regulatory-services agreement with the NFA, under which exchange functions may be delegated to the NFA (Rules 9.1(a), (b), (d); 9.2(a), (b); 2.14).¹³

For ForecastEx, the Interactive Brokers venue, arbitration sits in Chapter 8. Claims against ForecastEx “shall be settled by arbitration” (Rule 801(a)); member-versus-member and customer claims are by election (Rule 801(b), (c)); arbitration is voluntary for participants other than ECPs and may allow counterclaims under Regulation 166.5 (Rule 801(e)). Rule 802 runs it under the NFA Member Arbitration Rules when all parties are NFA members, and the NFA Code of Arbitration when they are not, each incorporated by reference. Failing to honour an award brings discipline (Rule 803).¹⁴

The contrast: ForecastEx and Polymarket US have an express route for claims against the exchange, while Kalshi’s rulebook points such disputes back to its own procedures. ForecastEx (Rule 801(e)) and Kalshi (Chapter 10 arbitration is by member election, Rule 10.1(a)) keep arbitration voluntary for a retail trader in their own rulebooks. Polymarket US provides for binding arbitration, with voluntariness for a non-ECP customer resting on the federal rule (Appendix B, Core Principle 14 (b)(2); 17 CFR 166.5).^3,4,11,13,14

Do you have to arbitrate, or can you go to court?

For a retail customer, pre-dispute arbitration is voluntary. A pre-dispute arbitration agreement is one you sign at account opening, before any problem, agreeing to arbitrate later disputes. A prediction market cannot make you give up the right to sue in court, or to go to the CFTC, before a dispute arises, except on strict terms.

Regulation 166.5 is the rule. A CFTC registrant may not have a customer agree, before a dispute arises, to arbitrate unless signing is “not a condition for the customer to utilize the services”, the clause is separately endorsed (the customer signs it on its own), and the customer keeps the right to seek CFTC reparations and to choose the forum. The reparations right has a clock: once arbitration is demanded, the customer has 45 days to elect reparations instead, and the registrant must list qualified forums within 10 business days, from which the customer picks within 45 days (17 CFR 166.5(c)(1) to (5)).⁴

The required notice, in large boldface type: “Three Forums Exist for the Resolution of Commodity Disputes: Civil Court litigation, reparations at the Commodity Futures Trading Commission (CFTC) and arbitration conducted by a self-regulatory or other private organization.” (17 CFR 166.5(c)(7).)

Two more points. The procedure a DCM sets up “shall not include any unreasonably short limitation period” that forecloses a customer’s claim (17 CFR 166.5(e)). And an ECP, meaning an institution or other sophisticated party the Act defines, may negotiate any arbitration term, including waiving the reparations right, which a retail trader cannot (17 CFR 166.5(g); 7 U.S.C. 18(g)). A class-action waiver is a clause that bars joining others in one claim; we cover the mechanism and leave the live cases to our tracker of prediction market lawsuits. How clauses are drafted and awards enforced sit in AI and arbitration clauses and AI and award enforcement.^4,5

What is NFA arbitration and does it cover prediction-market disputes?

NFA arbitration is the National Futures Association’s forum for futures-related customer disputes, and where ForecastEx routes its arbitration. The NFA runs the arbitration itself, and only a futures-related claim against one of its Members or Associates qualifies (NFA Customer Arbitration Guide).⁹

• It is open to anyone with a bona fide claim against a person or firm that is an NFA Member or Associate; its jurisdiction covers disputes over futures and options on futures (NFA Customer Arbitration Guide).
• A claim must be filed within two years from when you knew, or should have known, of the acts behind it; miss that and the NFA loses jurisdiction (Customer Arbitration Guide).
• A summary proceeding decides a case on the written submissions, with no in-person hearing, and is generally used when the total claim is $50,000 or less; one arbitrator decides where the total is $150,000 or less (Customer Arbitration Guide).
• The prediction-market link is contractual: ForecastEx runs its arbitration under the NFA rules incorporated by reference (Rule 802), and Polymarket US delegates functions to the NFA under a regulatory-services agreement (Rule 2.14).^9,10,13,14

Most trader claims are small, so the summary track matters: one arbitrator on the papers is cheaper and quicker than a hearing, and it is the likely path for a sub-$50,000 payout dispute. For the forum end to end, see NFA arbitration; for the broker-dealer equivalent, FINRA arbitration.⁹

Can you take a prediction-market dispute to the CFTC?

Yes, in two ways. A tip or complaint to the Division of Enforcement reports a suspected violation but does not get the trader’s money back. A whistleblower who files a Form TCR may be eligible for an award of up to 30% of the sanctions the CFTC collects, but that is a bounty on penalties, not recovery of a loss. A reparations case can award money, but runs against CFTC-registered professionals, not against the exchange in every case (cftc.gov/complaint). A suspected insider trade or other market abuse is reported the same way; the rules and the cases are in prediction market insider trading.⁸

Reparations is run by the CFTC’s Office of Proceedings and decided by a CFTC Administrative Judge, a Commission employee authorised to conduct reparation proceedings, under 17 CFR Part 12. A complainant can recover actual, out-of-pocket damages, and must apply within two years of the cause of action (7 U.S.C. 18(a)(1); 17 CFR Part 12; CFTC Reparations Program).^5,6,7

The statute sets a real limit. It lets a reparations complaint lie against “any person who is registered under this chapter”, in practice an intermediary such as a futures commission merchant (FCM), introducing broker or associated person; the CFTC calls it complaints “against futures industry professionals registered with the CFTC” (7 U.S.C. 18(a)(1); cftc.gov/complaint). A market that trades direct, with no intermediary between trader and exchange, may leave a retail trader without a clean reparations route against the exchange itself. That is a real gap.^5,8

For how AI is used inside arbitration itself, see AI in arbitration; for wider online and ombudsman routes, AI in dispute resolution and AI in dispute avoidance; markets with a free, independent ombudsman are a contrast (financial ombudsman schemes).

Who decides how a market settles, and can you challenge it?

The contract’s own rules decide, and on a regulated US market there is no independent appeal of the outcome itself. The published value of the underlying measure is read against the contract’s Payout Criterion, and that fixes the result (Kalshi definitions). ForecastEx names that publisher the Source Agency, “any agency, whether public or private, that publishes data used to” settle the contract (ForecastEx definitions).^11,14

Kalshi can open a Market Outcome Review Process at its discretion where something may affect the reliability of the underlying measure; its Outcome Review Committee then determines the final Market Outcome within 24 hours, and “the determinations made by the Outcome Review Committee are final” (Kalshi Rule 7.1). An execution error has a route, but a disagreement with the outcome has no user-facing appeal above the exchange. You escalate to the CFTC, a regulator, not an appeal of the result.¹¹

There is no independent ombudsman and no outcome appeal; the exchange applies its filed rules and the CFTC sits above it. Decentralised and offshore markets use a different model, where a token-holder vote or an oracle (an outside data source) resolves contested outcomes; that belongs to prediction market resolution disputes, smart contract dispute resolution, and, from the exchange’s side, crypto exchange arbitration.

What would make prediction-market disputes fair and fast?

In our view, the standards for a fair, fast process are already written down; they are just not joined up. Every regulated market runs on a rulebook and a member agreement, and Core Principle 14 sets the bar: an impartial decider, a real chance to be heard, a prompt written decision, and no appeal inside the exchange (Appendix B, Core Principle 14 (b)(1)). Most trader claims are small. A sub-$50,000 payout claim would likely sit in the NFA’s summary track, decided on the papers by one arbitrator (NFA Customer Arbitration Guide). What would make those claims fair and fast is deciding each one under the rule that governs it, by a named person, with any AI confined to reading and drafting rather than deciding, on a record the parties can check. That is the same record the CFTC would need if a reparations case followed (7 U.S.C. 18). The weak point is the outcome itself: there is no independent appeal of a settlement, and reparations may not reach a direct-access exchange (Kalshi Rule 7.1; 7 U.S.C. 18).^3,5,9,11