The regulator shows that digital engagement practices can increase risky trading behavior.
According to the newest study, people under the age of 34 are particularly at risk.
The
Financial Conduct Authority (FCA) is keeping a close eye on trading apps due to
concerns that certain digital engagement practices (DEPs) may be encouraging
excessive risk-taking among investors, according to the results of a recent
online study.
FCA Scrutinizes Trading
Apps over Gamification Concerns
The FCA
constructed an experimental trading app platform to test the impact of various
DEPs on trading behavior. The study, which involved over 9,000 consumers, found
that features such as push notifications and prize draws can lead to more
frequent trading and riskier investment decisions by 11% and 12%, respectively. Additionally, these gamification strategies increased the proportion of trades in risky investments by 8% and 6%.
The
regulator also discovered that DEPs had a more significant effect on certain
subgroups, including those with low financial literacy, women, and younger
participants aged 18-34. Under the FCA's Consumer Duty, trading apps are
required to design and test their services to ensure they meet consumers' needs
and allow them to make well-informed investment choices.
"Trading
apps have the potential to transform retail investments, but some in-app
features might be pushing consumers towards more frequent or riskier trading,
which isn't right for everyone," said Sheldon Mills, Executive Director of
Consumers and Competition at the FCA. “With usage and popularity of trading
apps growing, we’ll be keeping them under review to ensure customers can
make investment decisions that suit their needs.”
Gamification Becomes a
Growing Concern
The FCA
initially cautioned stock trading apps to review game-like design elements in
2022 before the implementation of the Consumer Duty. With these apps' growing popularity, the regulator plans to continue monitoring them to
ensure customers can make suitable investment decisions.
Gamification
in trading refers to using game-like elements in trading platforms and
investment apps to engage users. This approach incorporates features such as push
notifications, competitions, rewards, and levels that are commonly found in
games, aiming to make the trading experience more interactive.
However, It
can encourage overtrading or prompt users to take unnecessary risks due to the
game-like environment that might downplay the real-world financial risks
involved.
The issue is serious, as studies indicate that retail investors trust financial influencers more than their family, friends, or economic experts. One in three respondents surveyed by CMC Markets in April reported that popular financial influencers most impact their trading decisions.
The
Financial Conduct Authority (FCA) is keeping a close eye on trading apps due to
concerns that certain digital engagement practices (DEPs) may be encouraging
excessive risk-taking among investors, according to the results of a recent
online study.
FCA Scrutinizes Trading
Apps over Gamification Concerns
The FCA
constructed an experimental trading app platform to test the impact of various
DEPs on trading behavior. The study, which involved over 9,000 consumers, found
that features such as push notifications and prize draws can lead to more
frequent trading and riskier investment decisions by 11% and 12%, respectively. Additionally, these gamification strategies increased the proportion of trades in risky investments by 8% and 6%.
The
regulator also discovered that DEPs had a more significant effect on certain
subgroups, including those with low financial literacy, women, and younger
participants aged 18-34. Under the FCA's Consumer Duty, trading apps are
required to design and test their services to ensure they meet consumers' needs
and allow them to make well-informed investment choices.
"Trading
apps have the potential to transform retail investments, but some in-app
features might be pushing consumers towards more frequent or riskier trading,
which isn't right for everyone," said Sheldon Mills, Executive Director of
Consumers and Competition at the FCA. “With usage and popularity of trading
apps growing, we’ll be keeping them under review to ensure customers can
make investment decisions that suit their needs.”
Gamification Becomes a
Growing Concern
The FCA
initially cautioned stock trading apps to review game-like design elements in
2022 before the implementation of the Consumer Duty. With these apps' growing popularity, the regulator plans to continue monitoring them to
ensure customers can make suitable investment decisions.
Gamification
in trading refers to using game-like elements in trading platforms and
investment apps to engage users. This approach incorporates features such as push
notifications, competitions, rewards, and levels that are commonly found in
games, aiming to make the trading experience more interactive.
However, It
can encourage overtrading or prompt users to take unnecessary risks due to the
game-like environment that might downplay the real-world financial risks
involved.
The issue is serious, as studies indicate that retail investors trust financial influencers more than their family, friends, or economic experts. One in three respondents surveyed by CMC Markets in April reported that popular financial influencers most impact their trading decisions.
Damian's adventure with financial markets began at the Cracow University of Economics, where he obtained his MA in finance and accounting. Starting from the retail trader perspective, he collaborated with brokerage houses and financial portals in Poland as an independent editor and content manager. His adventure with Finance Magnates began in 2016, where he is working as a business intelligence analyst.
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