Polymarket is seeking regulatory approval to offer margin trading to U.S. customers, a step that could significantly increase the amount of capital flowing through its prediction markets while introducing leverage-related risks more commonly associated with futures and securities trading.

A U.S. affiliate of Polymarket has applied to the National Futures Association for registration as a futures commission merchant, according to reporting published Thursday and Friday. That status would allow the business to handle customer accounts and collateral for transactions in which traders deposit only a portion of a position’s full value. Polymarket would separately need approval from the Commodity Futures Trading Commission to modify its exchange rules and permit trading that is not fully collateralized.

The applications represent an initial regulatory step rather than permission to begin offering the product. Neither the NFA filing nor Polymarket’s existing federal exchange registration guarantees that margin trading will be approved. The company has not announced when the proposed service could launch, what collateral levels it would require or which event contracts would be eligible.

Prediction markets let customers buy contracts tied to the outcome of future events, including elections, economic data releases, weather, sports and corporate developments. A contract generally settles at a fixed value when the outcome becomes known. Its price before settlement reflects the market’s assessment of the likelihood that the event will occur.

Most retail prediction-market positions have historically been fully funded. A trader buying $1,000 worth of contracts must generally supply the entire purchase amount, which makes the maximum potential loss clear at the time of the trade. Under a margin system, the customer could control the same position after posting less cash, with the remaining exposure supported by collateral and ongoing risk requirements.

That structure could make Polymarket’s U.S. platform more attractive to sophisticated traders, market makers and customers seeking to use capital across multiple contracts. More efficient use of collateral could support larger orders and improve liquidity, narrowing the gap between the prices at which traders are willing to buy and sell. It could also increase transaction volume and strengthen Polymarket’s ability to compete with established futures businesses and other consumer trading platforms.

Leverage would also change the risk profile of a product increasingly marketed to a broad retail audience. Event-contract prices can move abruptly when election results arrive, a team scores, a government releases economic data or a company makes an unexpected announcement. A trader who has posted only partial collateral could be required to add funds quickly or have a position liquidated. Losses could accumulate more rapidly than they would in a fully funded account, even though the underlying contract has a fixed settlement value.

Those risks are particularly acute as an event approaches resolution. A contract trading near the middle of its possible range can move close to zero or its maximum value within minutes when decisive information becomes public. A margin model would therefore require Polymarket and its clearing operation to establish collateral formulas, concentration limits, liquidation procedures and protections against customer defaults during sharp market moves.

Registration as a futures commission merchant carries substantial responsibilities. Regulated firms must satisfy capital requirements, maintain records, supervise customer activity and protect customer funds under federal derivatives rules. Regulators would also assess whether Polymarket’s technology, compliance staff and clearing systems can monitor leveraged positions continuously and respond when customer collateral falls below required levels.

Polymarket is pursuing the expansion as competition intensifies in the U.S. prediction-market sector. Kalshi, its largest domestic rival, received authorization in March for an affiliated futures commission merchant and margin-based trading structure. That approval gave Kalshi a head start in building products for customers who do not want to fully fund every position.

Both companies are competing to define prediction markets as regulated financial exchanges capable of producing real-time information about public events. Their growth has attracted interest from brokerages, media organizations, sports businesses and financial institutions. At the same time, contracts tied to sports, politics and sensitive geopolitical developments have drawn scrutiny from state regulators, lawmakers and compliance departments concerned about gambling laws, market manipulation and the potential use of nonpublic information.

Polymarket’s U.S. expansion follows a major regulatory reversal for the company. In 2022, it agreed to pay a $1.4 million civil monetary penalty and stop serving U.S. customers after the CFTC said it had operated an unregistered market for event-based binary options. Polymarket later acquired QCEX, a regulated derivatives exchange and clearinghouse, providing the infrastructure for a legally authorized return to the American market.

The company resumed U.S. operations through a platform separated from its international business. Polymarket’s international exchange uses cryptocurrency and blockchain-based settlement, while the American platform operates through a centralized, federally regulated structure funded with U.S. dollars. Executives have emphasized that the two operations are legally and operationally distinct.

The margin application is therefore both a product initiative and a test of Polymarket’s effort to rebuild regulatory credibility. The company has hired executives with experience at Coinbase and Robinhood as well as former federal law-enforcement personnel to strengthen compliance, surveillance and enforcement functions. It has also pursued sports, media and marketing partnerships as it works to expand its U.S. customer base.

Approval could help Polymarket generate more trading activity without relying solely on customer deposits to fund each contract. Greater capital efficiency could encourage participants to spread positions across politics, sports, economic indicators and other markets. It might also make event contracts more relevant to professional investors seeking to hedge exposure to specific outcomes or express short-term views around scheduled events.

Regulators will have to determine whether those potential benefits outweigh the added complexity for consumers. Clear disclosures would be especially important because some customers may interpret margin as a payment convenience rather than borrowed purchasing power. Platforms would need to explain how collateral requirements can change, when positions may be closed and whether customers could owe additional funds after adverse market movements.

For now, Polymarket’s filing places the company on a regulatory path already pursued by Kalshi but does not establish a timetable for approval. The outcome could shape not only the competitive balance between the two platforms but also the broader direction of the U.S. prediction-market industry. A successful launch would move event contracts closer to the structure of conventional derivatives markets; a delayed or restricted approval would signal continued caution about extending leverage to a fast-growing retail product.