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The “gamification” of the stock market -- why watchdogs are worried

Wednesday marked another day of extraordinary volatility in London markets as the Bank of England made a sharp U-turn on its monetary policy, sending the pound briefly plunging (Tim Goode/ PA) (PA Archive)
Wednesday marked another day of extraordinary volatility in London markets as the Bank of England made a sharp U-turn on its monetary policy, sending the pound briefly plunging (Tim Goode/ PA) (PA Archive)

The City regulator is worried about the “gamification” of the stock market. What does that mean?

There is a new breed of share trading app that seems to encourage people to trade quickly and often. Some worry this will end in tears and goes against the long-held notion that only the most professional investors can profit from quick-fire trading.

What are the incentives to trade often?

You can earn points and other small prizes. The Financial Conduct Authority says some apps gives users “celebratory messages”, patting them on the back for having made a punt. This is not illegal or even against City rules, but the FCA is concerned about it.

Sarah Pritchard, the FCA executive director of markets, says: “Some product design features could be contributing to problematic, even gambling like, investor behaviour.” The FCA adds: “We are concerned that these positive reinforcements may encourage people to trade more frequently or make investment choices that they otherwise wouldn’t . . . celebratory messages and badges can lead people to take on more risk.”

Which apps did it single out?

It didn’t name them, so we better not either. But the most likely culprits are those that don’t make any money unless people trade, because there are no other fees.

Apps that have leader boards ranking investors against each other seem to be of particular concern, since they make share trading into a video game. Like Call of Duty, but for the stock market.

What does the more established retail share platforms think about this?

AJ Bell chief Michael Summersgill told the Standard: “What people have been doing in the fintech disruptor space is trying to engage customers more. That’s fine. But some of the ways they have done that are slightly misguided.”

He added: “The fear of the regulator is that people are being encouraged to over trade. That is not the way we have structured products. We are trying to appeal to the long-term investor by encouraging a ‘buy and hold’ mentality.”

Wasn’t there some Covid related share boom?

During lockdown a “meme-stock” trading frenzy saw amateur traders pump up the prices of stocks including GameStop in what some saw as revenge against hedge funds. Most small investors who deal like this lose money, all research shows.

Isn’t it good that more people are interested in the stock market?

Possibly. But good for whom? Fintech magazine wrote recently: “Over the last decade, investing has undergone a transformation. Once the preserve of the rich and well-connected, stocks and shares – and now cryptocurrencies too – have become much more accessible, thanks in large part to a new breed of investing apps like eToro, Webull and Robinhood. They have certainly made investing easier, with slick user design and intuitive flows, but have they distracted ordinary consumers from the inherent risk involved in investing?”