The UK’s financial regulator, the Financial Conduct Authority (FCA), recently warned that certain gamification features in trading apps could increase risk-taking among users. The features in question include things such as push notifications and prize draws which many trading apps have adopted.

FCA Research Into Trading Apps Unveils Impacts Of Gamification Features

The UK’s financial watchdog’s warning came after researching the matter by building its own experimental trading app platform. The goal was to test the effect of different digital engagement practices, or DEPs, on the participants’ trading behavior.

Around 9,000 people were enlisted for the experiment, and the study found that push notifications alone have boosted the number of trades made by 11%. Meanwhile, elements such as prize draws and points given to participants who are more active within the app have resulted in a 12% rise in the number of conducted trades.

Not only that but push notifications and points and prize draws also increased the proportion of trades involving risky investments by 8% and 6%, respectively.

Finally, digital engagement practices were also found to have a larger impact on those with lower financial literacy, women, and younger participants.

The FCA Intends To Keep A Close Eye On Trading Apps

Clearly concerned with these results, the FCA has already made steps to tackle gamification in the new wave of retail trading platforms. To do this, it used its Consumer Duty, which says that apps need to make sure that their services are designed and tested to meet consumers’ needs.

They must also enable customers to make timely, properly informed, and effective investment decisions, including those with characteristics of vulnerability.

Commenting on the research results, the FCA’s executive director for consumers and competition, Sheldon Mills, said that trading apps have strong potential to transform retail investments.

However, he added that some in-app features might be responsible for pushing consumers toward more frequent or riskier trading. This is not right for everyone, according to Mills.

Introducing gamification features is seen as a form of manipulation, as it encourages traders to engage more in trading practices, which could be counter-productive for the traders themselves. Inexperienced traders, in particular, are prone to emotional trading and taking major risks in the expectation of large rewards, which rarely turn out as expected.

Commenting on the matter further, Mills said that the usage and popularity and trading apps continue to grow. As it does, the FCA intends to keep the apps under review to make sure customers are making investment decisions that suit their needs.