Who is prohibited from trading a particular event contract?

Whoever the venue's rulebook and the contract's terms exclude, within federal law. The CFTC says designated contract markets 'establish and enforce rules to protect against fraud, manipulation, and unfair trading practices, including insider trading,' and that each exchange is 'responsible for monitoring its trading activity for anomalies and abuses, such as insider trading.' The specific lists of barred persons are in each venue's rules, which change, so they must be checked with a date.

Does federal law ban trading on inside information?

In some circumstances. CFTC Rule 180.1 prohibits fraud and deception in connection with swaps and commodity contracts. It also states that nothing in it 'shall be construed to require any person to disclose to another person nonpublic information that may be material.' Whether a given trade on nonpublic information is unlawful depends on how the information was obtained and used, which is a question for counsel, not a rule of thumb.

What about offshore venues?

Their own terms apply, with no CFTC-designated contract market's surveillance obligations behind them. Polymarket's international venue relies on its terms of service; Polymarket US, as a designated contract market, is subject to the core principles.

Who loses when an insider trades?

The traders on the other side. Event contracts are zero-sum before fees: Kalshi says 'you are always trading against another member of the platform, not the exchange itself.' An informed buyer's profit is the sellers' loss, which is why exchanges are required to surveil for it and why uninformed traders should be wary of sharp moves before an announcement.

Do exchange rules cover front-running and trading against customers?

Yes, on a designated contract market. Rule 38.152 requires every DCM to prohibit front-running, wash trading and pre-arranged trading, and, where intermediation is permitted, 'trading ahead of customer orders, trading against customer orders, accommodation trading, and improper cross trading.' Rule 38.150 requires the capacity to 'detect, investigate, and apply appropriate sanctions.'

Is an affiliate of the exchange allowed to trade?

On Kalshi, yes, with disclosure. AltStreet's Kalshi review (August 2026) records that Kalshi's board approved its affiliate Kalshi Trading LLC as an exchange member under Rulebook 2.12, disclosed in a September 2021 emergency rule filing, and that market-maker rebate and revenue-share terms are not published. That is a disclosed conflict, not an allegation of insider trading.

Insider Information and Trading Restrictions

Prediction Markets & Event Contracts

Definition

Insider trading restrictions in prediction markets are rules that prohibit people with material nonpublic information about an event, or the ability to influence it, from trading contracts on that event. They come from federal anti-fraud rules, from exchange rulebooks and from individual contract terms, and they differ by venue and by market.

Why it matters

Insider trading erodes the reason prediction markets exist: prices that aggregate public information fairly. For traders, it means the other side of a sharp move may know the answer, and in a zero-sum contract every dollar an insider makes comes out of other traders' accounts. Read the venue's prohibited-trader rules, with their date, for any market on people, companies or official decisions. Check whether affiliates of the exchange trade on it and what is disclosed about them. And avoid trading events you or your employer can influence or learn about before the public, whatever a particular rulebook allows.

Common misconceptions

•Insider rules are not uniform across venues or contracts, because each exchange writes its own rulebook and individual contracts can add their own restrictions.
•Offshore terms of service are not the same as exchange surveillance under CFTC rules, because the core principles' monitoring and sanction duties bind only designated contract markets.
•Avoiding a market you can influence is the safe default, whatever the rulebook says, because federal anti-fraud rules can reach conduct that a venue's list does not name.
•Rule 180.1 is not a general duty to disclose, because it states that nothing in it requires disclosing material nonpublic information, so liability turns on how information was obtained and used.
•A disclosed affiliate trader is not proof of misconduct, because Kalshi discloses Kalshi Trading LLC's membership; the issue for users is the conflict and the unpublished terms.

Technical details

Questions to ask (with dates)

Does the venue's rulebook list prohibited persons, such as employees, participants in the event, or officials?

Do individual contracts add restrictions?

How does the venue monitor and report suspected insider trading?

What regulator, if any, oversees the venue?

Do affiliates of the exchange or clearinghouse trade, and on what disclosed terms?

Worked example: who pays for an informed trade (illustrative)

A trader who already knows the answer buys 1,000 yes contracts at $0.20: cost $200 plus a Kalshi standard fee of $11.20.

The event resolves yes: payout $1,000, profit $788.80.

That $788.80 plus the fee is exactly what the sellers at $0.20 lost: in a zero-sum contract the informed trader's edge is other members' loss.

A move from 20 to 90 cents shortly before an announcement is the pattern exchange surveillance under Core Principle 4 is meant to catch.

What AltStreet's reviews and filings show

Kalshi review (August 2026): Kalshi Trading LLC, an affiliate, is a board-approved exchange member; market makers receive rebates, revenue share and tools that 'may give market makers a trading advantage,' on terms not published.

Polymarket review (August 2026): Rule 3.1(i) of the US rulebooks permits affiliates of the clearinghouse to clear, with conflicts procedures disclosed by website notice, without naming which affiliates trade or clear.

Polymarket litigation map (checked October 12, 2026): two 2026 Southern District of New York matters against an individual trader mention Polymarket but name no Polymarket entity; AltStreet does not characterize them.

CFTC guidance (read 2026-11-06): each regulated exchange is 'responsible for monitoring its trading activity for anomalies and abuses, such as insider trading.'

How investors apply the term

Investors usually apply this term by tying the definition back to the controlling documents and then asking which cash flows, rights, restrictions, or valuation assumptions it changes. A useful review looks at the term alongside fees, leverage, liquidity, reporting frequency, and manager discretion rather than treating it as a standalone concept.

The practical diligence test is simple: identify who benefits if the assumption is wrong, who has control when conditions change, and what evidence the investor receives after closing. Terms that cannot be reconciled to documents, cash movements, and monitoring data should be treated as marketing shorthand until proven otherwise.

Frequently asked questions

Who is prohibited from trading a particular event contract?: Whoever the venue's rulebook and the contract's terms exclude, within federal law. The CFTC says designated contract markets 'establish and enforce rules to protect against fraud, manipulation, and unfair trading practices, including insider trading,' and that each exchange is 'responsible for monitoring its trading activity for anomalies and abuses, such as insider trading.' The specific lists of barred persons are in each venue's rules, which change, so they must be checked with a date.
Does federal law ban trading on inside information?: In some circumstances. CFTC Rule 180.1 prohibits fraud and deception in connection with swaps and commodity contracts. It also states that nothing in it 'shall be construed to require any person to disclose to another person nonpublic information that may be material.' Whether a given trade on nonpublic information is unlawful depends on how the information was obtained and used, which is a question for counsel, not a rule of thumb.
What about offshore venues?: Their own terms apply, with no CFTC-designated contract market's surveillance obligations behind them. Polymarket's international venue relies on its terms of service; Polymarket US, as a designated contract market, is subject to the core principles.
Who loses when an insider trades?: The traders on the other side. Event contracts are zero-sum before fees: Kalshi says 'you are always trading against another member of the platform, not the exchange itself.' An informed buyer's profit is the sellers' loss, which is why exchanges are required to surveil for it and why uninformed traders should be wary of sharp moves before an announcement.
Do exchange rules cover front-running and trading against customers?: Yes, on a designated contract market. Rule 38.152 requires every DCM to prohibit front-running, wash trading and pre-arranged trading, and, where intermediation is permitted, 'trading ahead of customer orders, trading against customer orders, accommodation trading, and improper cross trading.' Rule 38.150 requires the capacity to 'detect, investigate, and apply appropriate sanctions.'
Is an affiliate of the exchange allowed to trade?: On Kalshi, yes, with disclosure. AltStreet's Kalshi review (August 2026) records that Kalshi's board approved its affiliate Kalshi Trading LLC as an exchange member under Rulebook 2.12, disclosed in a September 2021 emergency rule filing, and that market-maker rebate and revenue-share terms are not published. That is a disclosed conflict, not an allegation of insider trading.