Event contract in the UK: is it a financial instrument or a bet?

2. What is an event contract?

• the financial regulatory regime, where the event contract is considered as a "financial instrument" under the Financial Services and Markets Act 2000 (Regulated Activities) Order 2001 (the RAO); or

• the gambling regime, where the event contract is considered as "betting" under the Gambling Act 2005.

The boundary between these two regimes is not always clear. In the sections that follow, we undertake a more detailed examination of the UK's regulatory frameworks applicable to event contracts.

3. How does an event contract work?

Simplified, participants purchase contracts based on the outcome of a clearly defined "yes" or "no" question, such as, "Will the S&P 500 exceed $7,000 this year?". Each correct prediction pays out a fixed amount, typically £1 per contract.

The price of an event contract (typically) reflects the perceived probability of the outcome at the time of purchase. For example, if 30% of participants predict "yes" at the time you make the purchase, a "yes" contract would be valued around 30p while a "no" contract would cost around 70p.

If the event resolves as "yes", holders of "yes" contracts receive £1 per contract, realising a profit of around 70p per contract (the £1 payout minus the 30p purchase price, excluding any applicable transaction fees). Those who hold "no" contracts receive nothing. This payoff structure reflects the binary - all or nothing nature of event contracts.

In summary, an event contract is likely to be considered a binary option (which is a subset of CFD and therefore a financial instrument under the RAO) where the underlying relates to financial indices, economic statistics, commodities, interest rates, or climate variables. This means event contracts based on economic or financial indicators are likely to be viewed as binary options, falling within the UK financial regulatory perimeter.

The FCA previously indicated that financial bets are often placed for investment purposes and, as such, are capable of being within the scope of MiFID regulation. By contrast, sports spread bets include bets on the outcome of sporting and political events, which are not capable of being MiFID instruments. The FCA also clarified that its regulatory framework does not account for the risks to customers from gambling activity in relation to events which have no connection to the financial markets.

Further, in its letter to the Treasury Committee, the FCA requested clarity regarding the regulatory boundary of sports and non-financial spread-betting. This was further discussed in the March 2025 Regulatory Perimeter meeting between the Economic Secretary to the Treasury (EST) and the CEO of the FCA. In the meeting, the CEO noted that spread betting products which are based on non-financial indexes, e.g., sports or political performance, are not within scope of the FCA's perimeter though there are some calls for them to be within the perimeter. He noted that consumers must be aware of the risks when buying such unregulated products. The EST agreed that the government and regulators should work together to ensure consumers understand the regulatory position and associated risks of these products and it should not be assumed that all such products should be regulated.

We set out below the general principles in relation to (i) binary option; and (ii) gambling / betting in the UK.

1. Binary option

A binary option is considered a subset of CFD under section 85 of the RAO. In short, an event contract is likely to be viewed as a binary option if:

• it is a derivative contract (i.e., where the value is derived from the value of an underlying asset) of a binary / other fixed outcomes nature;

• it is settled in cash; and

• the underlyings relate to securities, currencies, interest rates, commodity prices, financial indices, climate variables or economic statistics.

Since 2019, the FCA has banned the sale of binary options to retail customers, which means unless the event contracts are structured in a way that fall under the broader category of CFD (see below), they cannot be offered to retail clients.

Where an event contract is structured to deliver more than a binary payoff, e.g., by incorporating an interest rate-linked payout, or is referenced to an index, it is suggestive that the product falls within the broader definition of CFD (and would therefore not be considered as a binary option). Nonetheless, careful structuring and consideration are required to ensure that the event contract constitutes CFD in the broader sense.

2. Gambling / betting

The definition of "betting" is defined under section 9 of the Gambling Act 2005 as: "[i]n this Act "betting" means making or accepting a bet on –

• the outcome of a race, competition or other event or process,

• the likelihood of anything occurring or not occurring, or

• whether anything is or is not true."

Based on the definition above, a bet falling within the gambling perimeter could also cover binary options as explained above.

However, there is an exemption which excludes bets the offering of which constitute a financial regulated activity from qualifying as "bets" under the Gambling Act 2005. Briefly, this means if the contract is considered as a binary option, it would fall within the exemption and therefore not constitute a gambling bet under the Gambling Act 2005.

Additionally, the Gambling Commission has clarified that products using financial terms would not normally be granted a gambling licence.

Accordingly, returning to the examples presented at the beginning of this article: 

• Will FTSE 100 price reach £9,800 tomorrow? – likely a binary option.

• Will the Ukrainian President wear a suit at the next meeting? – clearly a gambling bet.