The latest: The UK’s Financial Conduct Authority (FCA) has warned that the gamification of trading apps can lead to amateur investors taking on more risk, being misled by spurious information, and making investments which aren’t in their interests.
Gaming trade clampdown As part of its a survey, the FCA interviewed 3,000 app users. review into firms’ use of “game design” features. According to the research:
- App features may blur the lines between online investing and “gambling-like behaviors.”
- Gamification techniques that use positive reinforcement have been implemented. These include celebratory messages to make a trade, the use of badges and points, as well as rewards and badges. These can cause people to take on more risk when they invest, according to the FCA.
- Push notifications were utilized, which can cause people to trade in a more risky way. The biggest impact was on less-experienced and younger investors.
- Stock leaderboards with the highest price changes have been shown by consumers to lead them into poorer returns.
The larger pictureIn an effort to retain the attention of Gen Z investors, trading apps are more likely to use gamification strategies. Apps such as eToro ChipMarkets have been flooded by newcomers following the GameStopStock saga to begin in 2021, and the investment craze of commission-free trading apps such as Robinhood.
As the FCA points, however, gamification features could encourage risky and addictive behavior among investors. The UK regulator is expected to crack down on amateur traders being exploited by firms.
What are the best practices for firms?UK traders should be aware of any potential dangers to consumers or lead to FCA sanctions.
They must also make sure they provide support for customers who are struggling with addiction or gambling. Apps can offer tools that assist users in managing their investment. These are some examples. Freetrade’s Trade breakor features that help users understand the risks and benefits of amateur investing.
