America's Stock Regulators Probe Gamification in Trading Apps (cnbc.com) 17
Possibly anticipating some new regulations, America's Securities and Exchange Commission is investigating "gamification and behavioral prompts used by online brokerages that encourage trading," reports CNBC.
And SEC chairman Gary Gensler has specifically requested public input on two questions: First, the SEC chair wants to know how the financial regulator should protect investors against a potential conflict of interest. Online brokerages generate profits when their customers trade more often. Robinhood Markets, for example, makes money in part by sending its customers' orders to high-frequency traders in exchange for cash. That process is itself controversial and known on Wall Street as payment for order flow. But if game-like prompts or congratulatory messages from online brokerages cause customers to make more trades — and especially if more trades result in poorer portfolio performance at slightly worse prices — should the SEC intervene?
Gensler's second key question is a bit more cerebral. In essence, the SEC wants to answer: If brokerages' game-like or predictive prompts assume optimal outcomes and impact how often customers trade, should the regulator consider those in-app prompts as formal investment recommendations or investment advice?
Or, as Barrons puts it, "Critics say that some stock-trading apps look more like online games or gambling services, and their graphic interfaces are coercing users into making bad decisions."
Meanwhile, MarketWatch (via Dow Jones Newswires) reports on another issue: "According to a new survey from consumer finance website MagnifyMoney, 32% of U.S. investors say they have made trades while drunk." Gen Z members fell into the trap the most of any generation, with 59% confessing to drunk trading, while 9% of baby boomers admitted to trading under the influence. This can be combined with the rise in "emotionally charged" investing that traders say they would later regret. Per the survey, 66% of Americans admit to making impulsive investing decisions... Entering trade orders on mobile devices has assuredly made stock trading easier to complete while engaged in other tasks, including imbibing, but why does it seemingly impact younger investors more? According to the Addiction Center, an informational group for people struggling with substance-use disorders and co-occurring behavioral and mental-health disorders, the gamification interface of trading apps like Robinhood could be a factor.
A Robinhood spokesperson told MarketWatch their platform was designed "to remove historical barriers to investing and open financial markets to millions upon millions of people previously left behind.
"We are proud to expand access to the financial system and enable everyday people to learn and invest responsibly."
And SEC chairman Gary Gensler has specifically requested public input on two questions: First, the SEC chair wants to know how the financial regulator should protect investors against a potential conflict of interest. Online brokerages generate profits when their customers trade more often. Robinhood Markets, for example, makes money in part by sending its customers' orders to high-frequency traders in exchange for cash. That process is itself controversial and known on Wall Street as payment for order flow. But if game-like prompts or congratulatory messages from online brokerages cause customers to make more trades — and especially if more trades result in poorer portfolio performance at slightly worse prices — should the SEC intervene?
Gensler's second key question is a bit more cerebral. In essence, the SEC wants to answer: If brokerages' game-like or predictive prompts assume optimal outcomes and impact how often customers trade, should the regulator consider those in-app prompts as formal investment recommendations or investment advice?
Or, as Barrons puts it, "Critics say that some stock-trading apps look more like online games or gambling services, and their graphic interfaces are coercing users into making bad decisions."
Meanwhile, MarketWatch (via Dow Jones Newswires) reports on another issue: "According to a new survey from consumer finance website MagnifyMoney, 32% of U.S. investors say they have made trades while drunk." Gen Z members fell into the trap the most of any generation, with 59% confessing to drunk trading, while 9% of baby boomers admitted to trading under the influence. This can be combined with the rise in "emotionally charged" investing that traders say they would later regret. Per the survey, 66% of Americans admit to making impulsive investing decisions... Entering trade orders on mobile devices has assuredly made stock trading easier to complete while engaged in other tasks, including imbibing, but why does it seemingly impact younger investors more? According to the Addiction Center, an informational group for people struggling with substance-use disorders and co-occurring behavioral and mental-health disorders, the gamification interface of trading apps like Robinhood could be a factor.
A Robinhood spokesperson told MarketWatch their platform was designed "to remove historical barriers to investing and open financial markets to millions upon millions of people previously left behind.
"We are proud to expand access to the financial system and enable everyday people to learn and invest responsibly."
If day trading while drunk is wrong (Score:3)
I don't wanna be right.
Most day traders are kind of like ants at a picnic, Most Mega Traders using advanced algorithms and the fastest Internet links possible trade so much, so fast, they really can't lose.
Re: If day trading while drunk is wrong (Score:2)
And if the mega traders do lose (see GST) they will have the losses halted and the day traders locked out of the market until the big boys make their money back.
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Circuit breakers are implemented by each exchange. Big traders can trade off-exchange (over the counter, for example) and by pass them.
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You seem confused about what day trading is, and how it is a different thing than high frequency trading.
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Isn't market efficiency about finding ways to extract money from stupid people?
Yes. But in a regulated market, you also have to stay within the rules, which the regulator can basically change at will
Please... (Score:2)
Yeah thats the problem (Score:2)
The sober adults (Score:5, Insightful)
As an industry insider regulated by the SEC (among others), I have generally been impressed with the thoughtfulness and intelligence of the SEC in regulating the capital markets. This is another great example -- no one is leaping to the demagogic conclusion that gamification is bad, and yet they are considering its implications for having sane capital markets.
There are a lot of extremist viewpoints out there, ranging from anti-regulation nutcases to anti-market radicals. I'm certainly no natural sycophant, so it means all the more when I say kudos to the SEC for ignoring them all.
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I agree, hopefully their analysis will uncover some way to differentiate between gamification generally, and when it turns into a pump-and-dump machine. That's really the problem in my view; team gamification where there is an explicit attempt to boost the price for short-term gains that would not be happening without the "game."
Re: The sober adults (Score:2)
Truth in advertising (Score:1)
Isn't gamification just transparency in this situation, since gaming is literally what stock trading is, strictly speaking? IMO being highbrow about one's preferred game is just a mark of disingenuousness.
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Day trading is like, losing. (Score:2)
No, you can't beat the Big Boys. Their servers, running high-speed arbitrage systems, co-located with the stock exchange servers, see your bid, buy the stock, and resell it to you in nanoseconds, while you're waiting for your megabit response.