Online trading Gamification!

Time to evaluate its impact on user behavior and retail investor's trading choices.

Gary Gensler @GaryGensler

We’ve just put out a request for comment on digital engagement practices, like gamification & robo-advising. We'd love to hear how you use these tools & what you'd like to see @SECGov. Watch this week’s Office Hours & submit your comments on sec.gov

SEC in the USA has taken the right step in terms of eliciting feedback from retail investors on the pros and cons of “Gamification” in online trading.

I had written in one of earlier posts on the same subject and let's revisit the same!

SEC has already indicated that they have set sights on Meme stock trading and Cryptos in the US and similar initiative in Indian context may be needed.

The intersections of virality and network effects of money on legacy financial markets and crypto markets are far reaching and needs more scrutiny and regulations.

What is “gamification” from a product management perspective? Creating habit forming products has been the buzzword for long

The Product Folks 🚀 @TheProductfolks

Gamification has become somewhat of a buzzword in recent years, and product managers/designers are eager to incorporate it into modern products⭐ But how does gamification really fit into product design? 🧐

Gamification use-cases in online trading

Robinhood disrupted the zero-commission platform market big time but have problematic aspects of gamification in investing which needs to be addressed in the long run ( as we all know fin-tech is one of the highest regulated markets and prone for litigations!)

While new technologies can bring us greater access and product choice, they also raise questions as to whether we as investors are appropriately protected when we trade and get financial advice. In many cases, these features may encourage investors to trade more often, invest in different products, or change their investment strategy. Predictive analytics and other DEPs often are designed with an optimization function to increase revenues, data collection, or customer time spent on the platform. This may lead to conflicts between the platform and investors.” - Gary Gensler

Robinhood’s operating model involved that it does not charge the traders on its platform. It earns through the Pay for Order Flow (PFOF) mechanism. The platform routes the orders to market makers who compensate the broker. Its anybody guess as on reasons for meme stocks like GME and AMC to stocks rally!

Gamification of these features results in overtrading and actually need “nudges” for traders to trade properly and manage risk. In case of drawn downs, the app should not be prompting more trading! Adding crypto trading from a NFT and Metaverse perspective would definitely need more regulation as these will converge in the near future with online trading apps.

Nithin Kamath @Nithin0dha

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In my view online trading is not an appropriate use-case for gamification as it potentially results in losses for novice investor (due to irrational trading behaviour influenced by gamified trading apps) From a product management perspective, gamification is inevitable in the digital business ecosystem but online stock trading may not be a good use-case. Anshumani has articulated the right way to gamify products in general :

Anshumani Ruddra @baboonzero

Gamification is an overused and abused term in the world of consumer products. It is NOT incentivization. It is about applying game mechanics and game thinking to the core loop of your product. This playbook talks about what gamification is and isn't.

youtube.comPlaybooks - How Not to GamifyGamification is an abused term in the world of products. Gamification is not incentivization. It is about applying game mechanics and game thinking to the co...

Regulations to minimise gamification in online trading, embedding ethics in process of AI/ML- predictive analytics, coming up with benchmarks for Digital engagement practices is the need of the hour. This is a classic “Fintech" problem and stakeholders from legislation, Finance and Technology companies need to collaborate to ensure protection of gullible retail investors ( as pandemic and WFH has created a new breed of “Robinhood traders"!)

We can’t solve problems by using the same kind of thinking we used when we created them - Albert Einstein

Happy Trading!

Cheers,

Kumar