The financial regulatory body of the UK has issued a warning against the use of game-like elements in trading applications, saying that they could make customers act against their own interests.
The beginning of the week saw the Financial Conduct Authority (FCA) say trading apps were luring their customers to make trades with various in-app badges, points and celebratory messages. According to the body, consumers who use these features were more likely to make investments in products beyond their willingness to take risks. The financial watchdog also addressed trading app operators and called for them to review their designs.
According to the FCA, so-called gamification has become more common in trading apps lately, which enhanced the criticism of UK and US regulators to the practice, especially after the “meme-stock” trading frenzy in 2021. The controversial trend saw some amateur traders use social media to boost the prices of certain stocks, which pushed retail investors to dive into some wild dealing with shares.
The commentary of the UK Financial Conduct Authority highlights the fact that the watchdog remains focused on putting an end to trading behaviour that it considers speculation or similar to gambling. According to the executive director of markets at the FCA, Sarah Pritchard, some product design features could be encouraging gambling-like investor behaviour. Ms Pritchard further noted that the financial regulator expected all firms offering stock trading to review and, if necessary, bring some changes and improvements to their products.
FCA Finds Trading Apps’ Design Features Concerning Due to Similarities to Online Gambling
Recent research held by the UK financial regulator identified a number of design features in trading apps that were considered concerning.
So-called celebratory messages that appear after consumers made a trade on such an application drew attention along with in-app badges, points, leader boards, or special rewards. Researchers from the Financial Conduct Authority shared their concern that the aforementioned positive reinforcements may push people to trade more frequently or may encourage them to make investment choices that they would not do otherwise. In-app badges and messages, on the other hand, could push people to demonstrate more risky behaviour.
The research was held among 3,000 users across a number of trading app operators. It showed that some trading apps’ design features, such as push notifications, flashing green or red displays of real-time prices, or lists of stocks experiencing the biggest price changes, might make traders pay attention to misleading or false information. On the other hand, the UK’s financial regulator noted that the default settings of some applications caused some concerns linked to leverage or high investments because most customers usually stick exactly to the default settings.
The founder and CEO of one of the information services for retail investors, Finimize – Max Rofagha – revealed that trading app operators had a financial motive to encourage users to trade more in order to generate more money. Mr Rofagha believes that suspending certain design features would not be enough to solve the issue in the longer term, and further steps need to be taken by brokerages in order to prevent potential harm from being inflicted on their users.
Recent warnings against gamification in trading follow the Financial Conduct Authority’s launch of a multiyear effort aimed at encouraging more than 1 million people in the UK who have been estimated to have excessive cash holdings to use their money to make investments.
- Author
Daniel Williams
