Before deploying capital into any trading strategy, the most important question is: is it legal? For prediction market arbitrage between Polymarket and Kalshi, the short answer is yes — with important jurisdiction-specific caveats.
What is prediction market arbitrage?
Cross-platform arbitrage means buying YES on one platform and NO on the other for the same event, at a combined cost below $1.00. The profit is locked in at execution, regardless of how the event resolves. This is a neutral, math-based strategy — no prediction of outcomes, no insider information required.
Kalshi: CFTC-regulated and fully legal for US residents
Kalshi is a CFTC-designated contract market (DCM) — the same regulatory category as CME, CBOE, and other major US derivatives exchanges. Trading on Kalshi is legal for US residents. The CFTC provides oversight of contract listings, settlement, and market integrity.
Arbitrage strategies on Kalshi are not prohibited. The platform explicitly allows programmatic API access for trading. There are no rules against simultaneously holding positions hedged on another platform.
Polymarket: back in the US, blocked in a growing list of countries
Polymarket settled with the CFTC in 2022 over offering unregistered swaps to US persons and geo-blocked US IP addresses for the next three years. That changed in late 2025: after acquiring the CFTC-licensed exchange QCEX, Polymarket re-entered the United States as a designated contract market, and the waitlist came off in May 2026.
The restrictions moved rather than disappeared. Through 2026 a series of European gambling regulators moved against prediction markets: Portugal's SRIJ ordered ISP-level blocking in January 2026 after roughly €103M traded on its presidential election, Hungary followed the same month, and in June 2026 regulators from nine European countries signed a joint declaration targeting unlicensed prediction market platforms. Polymarket is now geo-blocked in a substantial list of countries, several of them in the EU, and access in the US varies by state while litigation continues.
The practical consequence: check both venues against your own country before you plan anything. Neither list is stable, and being able to use one venue tells you nothing about the other.
Is the arbitrage strategy itself legal?
Yes. Arbitrage — simultaneously buying and selling equivalent instruments to capture a price discrepancy — is a foundational and legal market activity. It is how markets become efficient. Institutional arbitrageurs operate across every financial market. There is no law against holding offsetting positions on two different platforms.
What matters is: (1) are you legally allowed to trade on each venue from where you live, and (2) are you complying with each venue's terms of service? Programmatic API trading is permitted on both. The binding constraint is not the strategy — it is whether you can hold both accounts at all.
Tax treatment
In the US, Kalshi trading profits are taxable. Kalshi issues a 1099 for US users with reportable activity. Gains are generally treated as ordinary income or capital gains depending on your situation. Consult a tax professional for your specific case.
On Polymarket (for eligible non-US users), tax treatment depends on your country of residence. USDC payouts are typically taxable events in most jurisdictions.
What Arbitrage Agent does
Arbitrage Agent is a non-custodial tool — your funds stay on Kalshi and Polymarket at all times. The agent uses each platform's official API. It does not circumvent any platform restrictions or geo-blocks. You are responsible for ensuring you are legally eligible to trade on each platform in your jurisdiction.
Cross-platform arbitrage requires accounts on both venues — one leg on each. There is no version of this strategy that works with only one. Before subscribing to anything, including us, check your own country against both venues' current terms. We sell to subscribers everywhere, but where we know of a restriction affecting your country we show it at checkout rather than letting you find out after paying.
Summary
- Kalshi: CFTC-regulated, API trading permitted, open to members in roughly 140 countries — but its Member Agreement names more than fifty restricted jurisdictions, including the UK, France, Italy, Belgium, Poland, Canada, Australia and Singapore
- Polymarket: CFTC-regulated in the US since late 2025; geo-blocked in a growing list of countries, several of them in the EU
- You need both: the addressable set is the overlap, and it is narrower than either list suggests
- Arbitrage strategy: Legal — it's a standard market-neutral trading technique
- Tax: Profits are taxable — keep records and consult a tax professional
This is not legal advice. Regulations vary by jurisdiction and change over time. Always verify the current rules in your country before trading.