Struggling to get your DIY investment portfolio in the green? It might not be about your stock picks but rather some behaviour-modifying techniques trading apps are implementing to “gamify” investing, even at the expense of your returns.
Driving the news: A new report published by the Ontario Securities Commission (OSC) sheds light on two tactics retail investment apps use to keep users engaged and making trades.
- “Gamification” is the practice of rewarding users with arbitrary points, allocating badges and displaying leaderboards to encourage competitive activity on the platform.
- “Herding” is giving users information like “top ten stock picks” to get them to follow the pack rather than make their own investment choices.
Why it’s happening: The retail investment app market is booming. In 2021, 3.6 million new DIY investment accounts were opened, per the Globe and Mail.
- But many users are inexperienced traders. The OSC hopes the study results will help regulators and app developers “better understand the influence their digital engagement practices may have on their clients.”
Why it matters: It’s one thing to throw away a couple of bucks on a game’s in-app purchases, but it’s a whole other story when you’re playing with your retirement fund.
- Concerns around trading apps have been swirling for a while, with the SEC voicing worries that gamification could distort investors’ risk tolerance in 2021.
- The study confirms that incentives can modify user behaviour and encourage people to trade even when it might not be the best investment decision.
Bottom line: You’re trying to grow your money, not become a Pokemon master. Trading apps are easy, convenient and quick, but it’s essential to develop a strategy for your portfolio and stick to it.