Gaming trading: how trading apps could be engaging consumers for the worse

Trading apps allow retail investors to trade directly and easily in a range of products, including fractional shares and high-risk investments such as crypto assets and contracts for difference (CFDs). 1.15m new accounts were opened by 4 trading app firms in the first 4 months of 2021, almost double the amount opened with all other retail investment services combined. Many of these customers were new to investing and younger than traditional investors.

We evaluated firms’ use of digital design features as part of a wider FCA assessment of these apps. This evaluation work supports the aim of our Consumer Investment Strategy for a consumer investment market where consumers can invest with confidence, understanding the risks they are taking and the regulatory protections provided.

It also supports the cross-cutting commitments set out in our three year strategy published this year, including putting consumers’ needs first and shaping digital markets to achieve good outcomes.

We selected several firms to demonstrate their apps to us, and it was clear that an extensive behavioural design toolbox had been used to create them. Many of the features used give us cause for concern, based on the existing behavioural theory and literature. We give some examples here.

We found gamification techniques that use positive reinforcement immediately after a trade, such as celebratory messages and falling confetti (Figure 1). We also found the use of points, badges and rewards for undertaking certain behaviours and ‘leader boards’ that rank people based on these rewards (Figure 2). We are concerned that these positive reinforcements may encourage people to trade more frequently or make investment choices that they otherwise wouldn’t. For example, A recent study found that celebratory messages and badges can lead people to take on more risk when investing.

We found frequent push notifications with the latest market news on stock movements (Figure 3) and lists that draw attention to real-time price changes by flashing red and green, as well as lists of stocks that had seen the largest price movements in the last 24 hours. We are concerned that giving information to consumers in this way may lead them to pay attention to spurious information and make investments which are not in their interests. Research has found that push notifications can stimulate people to trade in a riskier way using higher leverage and trading larger amounts, with the biggest impact on younger and less experienced investors. Displaying ‘leader boards’ for stocks that have seen the largest price changes in the last 24 hours have been shown to drive consumers to pay attention to and trade on the basis of this information, making poorer returns as a result.

Other features are likely to influence consumer choice such as how much to invest. For example, we found that investment amounts and the amount of leverage offered were sometimes defaulted to high amounts (Figure 4). There is extensive literature showing that people are much more likely to stick to a default.

We undertook a survey with over 3,000 app users, sampling customers of 4 trading apps. We also included participants from a trading app of a more traditional investment platform, which does not have the features we were concerned about, as a comparator. We also undertook in-depth qualitative interviews with a sample of 20 app users.

We used a method from academic literature, using a hypothetical investment decision to categorise participants into high, medium or low risk aversion or not risk averse. We compared these preferences to their reported investment choices. For example, if they chose a high-risk investment (such as cryptoassets) but had a low or medium risk appetite, we classified them as engaging in investing that was potentially beyond their risk appetite.

Gambling behaviour in a population is often assessed using the Problem Gambling Severity Index (PGSI). It  asks a range of questions around problematic behaviour such as ‘Have you bet more than you could really afford to lose?’ With academic advice, we adapted this in our survey for investing. We grouped respondents according to the degree of problematic behaviour they report. Scores of over 8 on the PGSI are classed as ‘problem gambling’, with those scoring between 3 and 7 classed as ‘at-risk’. Although our research looked at investments, we use the term ‘problem gambling behaviour’ here for consistency with previous studies.

We also asked a range of questions to understand wider investing behaviours and vulnerabilities such as how frequently they traded, their financial resilience and financial literacy.

The potential 'problem-gambling' behaviours our research has uncovered are associated with apps that have more gamification and sludge design elements. It does not tell us whether the design features themselves are causing poor outcomes such as investing in products beyond one’s risk appetite. This would require further investigation. We may look at aspects of this through future research and explore potential wider context and financial vulnerabilities for users of these apps, such as whether they borrow and invest and the scale of any losses.

The FCA is taking steps to follow up with some of the firms whose trading apps we reviewed and has stated that 'some product design features could be contributing to problematic, even gambling-like, investor behaviour. We expect all firms that offer stock trading to consumers to review and, where appropriate, make improvements to their products based on these findings. They should also ensure they are providing support to their customers, particularly those in vulnerable circumstances or those showing signs of problem gambling behaviour. To ensure customers are being treated fairly and ahead of the new Consumer Duty coming into force next year, all firms should be reviewing their products now to ensure they are fit for purpose.'