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Game On or Game Over? FCA’s Study of Digital Engagement in Trading

FCA's Study of Digital Engagement in Trading

Gaming has always been something which has engaged numerous people since its inception in the digital world. Considering the attractive power of games, some stock trading app operators thought of adding game-like elements to their apps. However, that seems to have backfired, as the Financial Conduct Authority (FCA) is closely monitoring trading apps.

They are worried that some digital engagement practices (DEPs) may encourage excessive risk-taking. Let’s take a look at the matter closer to quarters.

A Bold Strategy By FCA

The FCA created an experimental trading app to test how different digital engagement practices (DEPs) affect trading behavior. The study included over 9,000 consumers. It found that features like push notifications and prize draws made people trade more often. These features led to riskier investment decisions by 11% and 12%. Gamification strategies also increased risky trades by 8% and 6%.

The FCA discovered that DEPs had a stronger impact on certain groups. These groups included people with low financial literacy, women, and younger participants aged 18-34.

The Concern

The data of the study was alarming. Therefore, the Financial Conduct Authority warned that some app features might prompt users to act against their own interests. They are concerned these features could lead to “gambling-like behavior.” These features include frequent notifications with market news, in-app points, badges, and celebratory messages for trades. The FCA found that users of such apps were more likely to invest beyond their risk tolerance.

They are worried that people exposed to high-risk investments might show behaviors similar to problem gambling. Trading apps let retail investors trade easily in various products, including high-risk investments like cryptoassets. While gamification can positively engage users, the FCA found it often misleads consumers and leads to poor outcomes and problem behaviors. 

About Gamification

The FCA warned stock trading apps in 2022 to review game-like design elements before the Consumer Duty started. These apps are becoming more popular, so the FCA will keep monitoring them to ensure customers make good investment decisions. Gamification in trading uses game-like features in trading apps. These features include push notifications, competitions, rewards, and levels. They make trading more interactive. However, it can lead to overtrading and unnecessary risks. The game-like environment can hide real financial risks.

Final Words

The FCA is also teaching consumers to make better investment choices with its InvestSmart campaign. The FCA recently took action against “finfluencers” promoting financial products on social media. This issue is serious. Studies show retail investors trust financial influencers more than family, friends, or experts. A CMC Markets survey in April found that one in three people is most influenced by popular financial influencers when trading.

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