Stay clear: The ‘gamification’ of investment trading apps is a growing trend of using light-hearted images to bring in customers
Investors are urged to stay away from fun investment trading apps on phones – as they can easily lead users to lose money by making ill-considered investments.
The ‘gamification’ of investment trading apps is a growing trend in which lighthearted images – for example, amusing cartoons of people celebrating or perhaps surfing in a resort town – are used to bring in new clients.
The apps often offer “free” trades to lure new investors, many of whom are young, new to investing, and drawn to the prospect of making a quick profit. Major players include eToro, Revolut, Robinhood, Trading 212, and Webull.
Widespread concerns about these apps have now picked up on the regulator’s radar.
This week, the Financial Conduct Authority (FCA) will require the companies behind these apps to issue clearer warnings about the risks of using such trading hubs.
California-based Robinhood kicked off the gamification trend a few years ago — with investors seeing their phone screens filled with festive confetti every time they traded. After much criticism, it replaced the confetti with floating shapes.
Beginning investors used the Robinhood service to buy exposure for video game company GameStock.
The share price jumped from $20 to $480 in a matter of days. Robinhood was forced to stop clients trading GameStock when it became clear that investors were making bets they couldn’t afford to lose. GameStock’s stock price later plummeted and now stands at $25.
Robinhood blurred the line between investing and gambling. It encouraged novice investors to trade using complex financial instruments such as options and contracts for difference (CFDs), with two-thirds of investors losing money in the end.
It is not the only risky investment point available through these types of apps. They also offer the chance to invest in high-risk cryptocurrencies. The price of Bitcoin, the most popular cryptocurrency, soared to $69,000 last year, but has since fallen to around $17,000.
Robinhood has more than 19 million users worldwide and attracted six million new customers last year. But the biggest player is eToro, which has more than 28 million registered users – up from eight million this year.
Revolut, Trading 212 and Webull have 15 million, 1.5 million and 11 million customers respectively.
Krisztian Gatonyi, senior analyst at website BrokerChooser, says, “Many of these apps grab investors by using emotional appeal to make investing fun. They tend to simplify complex products. Most people should never get involved in options or cryptocurrencies because they are high-risk investments.”
He adds, “These outfits make money by encouraging investors to trade. Unfortunately, investing isn’t just about buying and selling in the short term. An investor is unlikely to get rich and is usually better off with fewer trades and a long-term view, that is, investing rather than taking a gamble.”
Gatonyi believes that using a mobile phone to trade stocks should be avoided by most people. He says: ‘There is something addictive about using a phone to invest. It encourages investors to check how their investments are doing several times a day – and to buy and sell more often than is right for them.’
He adds: ‘This can prove financially unhealthy and cause unnecessary stress. Investing is a serious activity that an investor has to make time for.’ The analyst is also concerned that trading apps regularly text or email investors with messages encouraging them to trade more than they should.
Charles Archer is a respected independent investment advisor. He believes that novice traders must prove they understand complex financial products before trading, just like a motorist must pass a driving test before being allowed to hit the road independently.
Archer says, “It should take a simple 20-minute multiple-choice quiz before anyone is allowed to trade these complex financial investments. Maybe they should trade on a trial basis to begin with.’
Asset manager AJ Bell launched his own user-friendly investment app Dodl earlier this year. While it features cartoon images of friendly monsters to lure customers, it keeps the investment process simple by only offering stock trading. It charges an annual fee of 0.15 percent and a trading fee of 0.5 percent.
Russ Mold, investment director, says, “We’re trying to make investing less complicated and easier to understand. As part of this, we built Dodl around equities and investment funds.
“Introducing complexity in the form of options and cryptocurrencies would increase the likelihood of confusion and put investors beyond their risk appetite.”
The Dodl app is regulated by the FCA, as are Trading 212, Revolut, and eToro. Although Robinhood is an American company, its British branch is covered by the FCA. The US-based app Webull is not subject to UK regulation, while cryptocurrency is not regulated by the FCA.
On Friday, ahead of the announcement, the FCA told The Mail on Sunday: “We are concerned about how companies can encourage consumer investment through apps and we will be publishing a report on its use shortly.”
On Friday, Revolut said, “We provide our clients with clear and detailed information about our trading products and the risks associated with buying and selling stocks or crypto assets.”
It added: “We launched a ‘learn and earn’ education tool on our app earlier this year.”
Robinhood thanked the MoS “for reaching out.” It sent links to educational blogs that it says are available to all customers.
Trader eToro said, “By nature, trading and investing should be viewed as risky, but we will continue to do everything we can to ensure that clients understand the risks involved.” It stressed that “gamification” is not a feature of its platform, but can be used “in an educational context.”
Both Trading 212 and Webull have not responded to our requests for comment.
Some links in this article may be affiliate links. If you click on it, we can earn a small commission. That helps us fund This Is Money and use it for free. We do not write articles to promote products. We do not allow any commercial relationship to affect our editorial independence.