In an online experiment with over 9,000 consumers, the FCA found that digital engagement practices (DEPs) used by trading apps, such as push notifications and prize draws, can increase trading frequency and risk taking.
In an FCA first, the regulator built an experimental trading app platform to test the effect of different DEPs on trading behaviour. It also found evidence that DEPs can have a larger impact on some subgroups, including those with low financial literacy, women and younger participants (18-34).
Under the FCA’s Consumer Duty, trading apps must ensure services are designed and tested so they meet consumers' needs and enable them to make effective, timely and properly informed investment decisions, including for those with characteristics of vulnerability.
The FCA warned stock trading apps to review game-like design features in 2022 ahead of the Consumer Duty’s implementation.
Sheldon Mills, Executive Director of Consumers and Competition at the FCA, said:
'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.
'With usage and popularity of trading apps growing, we’ll be keeping them under review to make sure customers can make investment decisions that suit their needs.'
The FCA continues to educate consumers about making better investment decisions and understanding the opportunities and risks, through its InvestSmart campaign. It has also brought charges against ‘finfluencers’ promoting financial products on social media.
Notes to editors
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Key findings:
- Push notifications and points & prize draw increased the number of trades made, by 11% and 12% respectively.
- Push notifications and points & prize draw increased the proportion of trades that were in risky investments by 8% and 6% respectively.
- Those with low financial literacy increased their trading by more than those with high financial literacy in the presence of flashing prices and trader leaderboards.
- Women increased their trading frequency by more than men when push notifications and points & prize draw were introduced.
- Younger participants (18-34) increased their end-of-trading portfolio riskiness by more than older participants (35+) across all DEPs (except flashing prices).
- In the research, low financial literacy was defined as giving 1 or fewer correct answers in response to the 'Big Three' financial literacy, which ask about the effect of compound interest and inflation as well as the importance of investment diversification.
- In 2022 the FCA warned against game-like design features in trading apps. We reported at that time that in the first four months of 2021, 1.15 million accounts were opened across four trading app firms.
- In the last three years, at just four trading app firms, more than 2.47 million accounts have been created across the UK. This is based on MiFID reporting data. MiFID reporting data includes all accounts opened which go on to trade a MiFID instrument. Note: as they are generally not MiFID instruments, this excludes most accounts which solely trade currency and/or cryptoassets.
- In May 2024, the FCA brought charges against nine individuals in relation to an unauthorised foreign exchange trading scheme promoted on social media.
- Find out more about the FCA’s InvestSmart campaign.
- Find out more information about the FCA.