Games are fun. But the cocktail of gaming and financial services can be dangerous. These two are contrasting phenomena and can be very risky.
“Gamification techniques add games or game-like competitive elements to non-game contexts such as financial services.” That’s how the European Securities and Markets Authority (ESMA) defines gamification.
The regulator is particularly concerned about the implementation of such methods in finance.
Gamification of Trading
Computers, especially mobile phones, and high-speed internet have changed the retail investing space. Now anyone can open a brokerage account and trade stocks or other financial assets in merely minutes. No knowledge of the financial market is necessary.
This retail trading
Retail Trading
In finance, retail trading refers to individual traders, trading through a broker, or on a platform. This can include novice traders and experienced traders. Trading and investing are divided into two categories, retail and institutional. Institutions include investment banks like JP Morgan or Citibank and global central banks like the US Federal Reserve and the European Central Bank. When we talk about retail trading however, we usually are referring to forex trading, but there are retail traders in every market ranging from commodities to stocks. The forex market is by far the largest and has the most retail traders. Retail foreign exchange trading is a small segment of the broader foreign exchange market where individuals speculate on the exchange rate between different currencies. In 2020 it is estimated that the forex market will exceed 7 billion dollars in daily activity. Retail Trading Sector Continues to GrowThe retail sector has developed with the advent of dedicated electronic trading platforms and the internet, which have allowed individuals to access the global currency markets. In 2016, it was reported that volume from retail foreign exchange trading represents 5.5% of the whole foreign exchange market or $385 million in daily trading turnover. Individual retail traders can access the same trades as central banks and online financial institutions. The retail forex trading industry is growing every day with the advent of trading platforms and their ease of accessibility on the internet.Retail traders rely on brokerage services who provide access to markets in the form of comprehensive trading platforms. The most common of these are MetaTrader 4 (MT4) and MetaTrader 5 (MT5), which offer trading to forex, stocks, contracts-for-difference (CFDs), and other assets.
In finance, retail trading refers to individual traders, trading through a broker, or on a platform. This can include novice traders and experienced traders. Trading and investing are divided into two categories, retail and institutional. Institutions include investment banks like JP Morgan or Citibank and global central banks like the US Federal Reserve and the European Central Bank. When we talk about retail trading however, we usually are referring to forex trading, but there are retail traders in every market ranging from commodities to stocks. The forex market is by far the largest and has the most retail traders. Retail foreign exchange trading is a small segment of the broader foreign exchange market where individuals speculate on the exchange rate between different currencies. In 2020 it is estimated that the forex market will exceed 7 billion dollars in daily activity. Retail Trading Sector Continues to GrowThe retail sector has developed with the advent of dedicated electronic trading platforms and the internet, which have allowed individuals to access the global currency markets. In 2016, it was reported that volume from retail foreign exchange trading represents 5.5% of the whole foreign exchange market or $385 million in daily trading turnover. Individual retail traders can access the same trades as central banks and online financial institutions. The retail forex trading industry is growing every day with the advent of trading platforms and their ease of accessibility on the internet.Retail traders rely on brokerage services who provide access to markets in the form of comprehensive trading platforms. The most common of these are MetaTrader 4 (MT4) and MetaTrader 5 (MT5), which offer trading to forex, stocks, contracts-for-difference (CFDs), and other assets.
Read this Term schene received a boost when some trading platforms brought game-like features on their platforms. The frontrunner was Robinhood which made picking stocks like the scratching of a fun lottery and even puts celebratory confetti drops on the phone screen after investments.
The strategy proved to be a massive hit as Robinhood become synonymous with retail trading for inexperienced newbie investors. The platform was also at the center of the Gamestop short-squeeze frenzy in early 2021 that was surprisingly coordinated on a subreddit by amateur investors.
The surge in retail demand garnered millions of users for the platform, from half a million in 2014 to 22.8 million as of March 2022. The company even went public with a massive hue and cry on a US stock exchange.
SEC in Action
But the practices of the so-called gamification of trading were not hidden from the US regulators. The Securities and Exchange Commission (SEC) initiated a formal probe last year on platforms implementing a game-like trading environment.
“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,” SEC’s Chair, Gary Gensler then said. His concerns were that these trading platforms encourage inventors “to trade more often, invest in different products, or change their investment strategy.”
The SEC even collected public input on the “gamification of trading”, but said in a consecutive report that these platforms need further investigation.
But the SEC is not alone to worry about the rise of the Robinhood-like trading platforms. The age-old industry players also take note of it and are often more critical of the practices.
“At the recent Berkshire Hathaway annual meeting, Warren Buffett said Robinhood has ‘become a very significant part of the casino aspect, the casino group, that has joined into the stock market in the last year or year and a half’,” Robert Johnson, Chairman and CEO at Economic Index Associates, pointed out to Finance Magnates.
Robinhood is already witnessing a drop in demand from its user base. The pandemic-related frenzy is wearing off from the retail trading market and so is the volatility
Volatility
In finance, volatility refers to the amount of change in the rate of a financial instrument, such as commodities, currencies, stocks, over a given time period. Essentially, volatility describes the nature of an instrument’s fluctuation; a highly volatile security equates to large fluctuations in price, and a low volatile security equates to timid fluctuations in price. Volatility is an important statistical indicator used by financial traders to assist them in developing trading systems. Traders can be successful in both low and high volatile environments, but the strategies employed are often different depending upon volatility. Why Too Much Volatility is a ProblemIn the FX space, lower volatile currency pairs offer less surprises, and are suited to position traders.High volatile pairs are attractive for many day traders, due to quick and strong movements, offering the potential for higher profits, although the risk associated with such volatile pairs are many. Overall, a look at previous volatility tells us how likely price will fluctuate in the future, although it has nothing to do with direction.All a trader can gather from this is the understanding that the probability of a volatile pair to increase or decrease an X amount in a Y period of time, is more than the probability of a non-volatile pair. Another important factor is, volatility can and does change over time, and there can be periods when even highly volatile instruments show signs of flatness, with price not really making headway in either direction. Too little volatility is just as problematic for markets as too much, we uncertainty in excess can create panic and problems of liquidity. This was evident during Black Swan events or other crisis that have historically roiled currency and equity markets.
In finance, volatility refers to the amount of change in the rate of a financial instrument, such as commodities, currencies, stocks, over a given time period. Essentially, volatility describes the nature of an instrument’s fluctuation; a highly volatile security equates to large fluctuations in price, and a low volatile security equates to timid fluctuations in price. Volatility is an important statistical indicator used by financial traders to assist them in developing trading systems. Traders can be successful in both low and high volatile environments, but the strategies employed are often different depending upon volatility. Why Too Much Volatility is a ProblemIn the FX space, lower volatile currency pairs offer less surprises, and are suited to position traders.High volatile pairs are attractive for many day traders, due to quick and strong movements, offering the potential for higher profits, although the risk associated with such volatile pairs are many. Overall, a look at previous volatility tells us how likely price will fluctuate in the future, although it has nothing to do with direction.All a trader can gather from this is the understanding that the probability of a volatile pair to increase or decrease an X amount in a Y period of time, is more than the probability of a non-volatile pair. Another important factor is, volatility can and does change over time, and there can be periods when even highly volatile instruments show signs of flatness, with price not really making headway in either direction. Too little volatility is just as problematic for markets as too much, we uncertainty in excess can create panic and problems of liquidity. This was evident during Black Swan events or other crisis that have historically roiled currency and equity markets.
Read this Term. The revenue of the platform drastically dropped from its early 2021 peaks. Its Q1 2022 revenue came in at $299 million, which is almost a 43 percent yearly decline.
The platform is now also focusing on crypto trading and even acquired a UK crypto-startup recently.
Johnson further said: “Many of these millennial investors started participating in the financial markets because they were provided pandemic payments and were locked down during the pandemic and turned to trading stocks and crypto for entertainment. These apps actually compete with gaming apps such as Draft Kings for consumer mindshare. As markets rose in value, these individuals concluded that there was easy money to be made in these markets and participated at higher and higher levels.”
Many inexperienced retail investors believe that Robinhood democratized trading by extremely lowering the entry barrier. But Johnson believes that the platform has “democratized speculation.”
Europe Is Strict
While the American regulator did not conclusively make any statement on the gamification of trading, its European counterpart is poised to bring curbs on such practices.
The ESMA issued a clear advisory to the European Commission asking for curbs on the gamification of trading. It came as a larger effort of the regulator to further strengthen investor protection.
“Gamification techniques in trading apps and personal recommendations on social media may cause retail investors to engage in trading behavior without understanding the risks involved,” ESMA’s Chair, Verena Ross said.
However, the regulator did not detail how it wants the implementation of curbs on these platforms. Whether these platforms will have to display a compulsory risk warning or have to bring design changes, only time will tell.
Kalkine’s CEO, Kunal Sawhney thinks that the regulatory intervention in the area “will be a long-drawn battle as it can’t be restrained overnight. The proliferation is much wider to rein in the already rampant ‘gamification of trading’ phenomenon.”
“If the curbs come into effect, many gullible investors would be saved from inadequate disclaimers and disclosers influencing them into making wrong investments,” he added.
“These apps highlight trending stocks and often compel investors to buy under duress. So, curbing this trend will save money for investors. The lottery incentives run by these apps also muddle people’s minds and they fall into these traps more often. So, curbs will safeguard the investors who are already neck-deep into ‘gamification of trading’.”
Whatever might be the regulatory discourse, any curbs on the gamification of trading will definitely heighten investor protection. After all, investment is not a game or even gambling.
Games are fun. But the cocktail of gaming and financial services can be dangerous. These two are contrasting phenomena and can be very risky.
“Gamification techniques add games or game-like competitive elements to non-game contexts such as financial services.” That’s how the European Securities and Markets Authority (ESMA) defines gamification.
The regulator is particularly concerned about the implementation of such methods in finance.
Gamification of Trading
Computers, especially mobile phones, and high-speed internet have changed the retail investing space. Now anyone can open a brokerage account and trade stocks or other financial assets in merely minutes. No knowledge of the financial market is necessary.
This retail trading
Retail Trading
In finance, retail trading refers to individual traders, trading through a broker, or on a platform. This can include novice traders and experienced traders. Trading and investing are divided into two categories, retail and institutional. Institutions include investment banks like JP Morgan or Citibank and global central banks like the US Federal Reserve and the European Central Bank. When we talk about retail trading however, we usually are referring to forex trading, but there are retail traders in every market ranging from commodities to stocks. The forex market is by far the largest and has the most retail traders. Retail foreign exchange trading is a small segment of the broader foreign exchange market where individuals speculate on the exchange rate between different currencies. In 2020 it is estimated that the forex market will exceed 7 billion dollars in daily activity. Retail Trading Sector Continues to GrowThe retail sector has developed with the advent of dedicated electronic trading platforms and the internet, which have allowed individuals to access the global currency markets. In 2016, it was reported that volume from retail foreign exchange trading represents 5.5% of the whole foreign exchange market or $385 million in daily trading turnover. Individual retail traders can access the same trades as central banks and online financial institutions. The retail forex trading industry is growing every day with the advent of trading platforms and their ease of accessibility on the internet.Retail traders rely on brokerage services who provide access to markets in the form of comprehensive trading platforms. The most common of these are MetaTrader 4 (MT4) and MetaTrader 5 (MT5), which offer trading to forex, stocks, contracts-for-difference (CFDs), and other assets.
In finance, retail trading refers to individual traders, trading through a broker, or on a platform. This can include novice traders and experienced traders. Trading and investing are divided into two categories, retail and institutional. Institutions include investment banks like JP Morgan or Citibank and global central banks like the US Federal Reserve and the European Central Bank. When we talk about retail trading however, we usually are referring to forex trading, but there are retail traders in every market ranging from commodities to stocks. The forex market is by far the largest and has the most retail traders. Retail foreign exchange trading is a small segment of the broader foreign exchange market where individuals speculate on the exchange rate between different currencies. In 2020 it is estimated that the forex market will exceed 7 billion dollars in daily activity. Retail Trading Sector Continues to GrowThe retail sector has developed with the advent of dedicated electronic trading platforms and the internet, which have allowed individuals to access the global currency markets. In 2016, it was reported that volume from retail foreign exchange trading represents 5.5% of the whole foreign exchange market or $385 million in daily trading turnover. Individual retail traders can access the same trades as central banks and online financial institutions. The retail forex trading industry is growing every day with the advent of trading platforms and their ease of accessibility on the internet.Retail traders rely on brokerage services who provide access to markets in the form of comprehensive trading platforms. The most common of these are MetaTrader 4 (MT4) and MetaTrader 5 (MT5), which offer trading to forex, stocks, contracts-for-difference (CFDs), and other assets.
Read this Term schene received a boost when some trading platforms brought game-like features on their platforms. The frontrunner was Robinhood which made picking stocks like the scratching of a fun lottery and even puts celebratory confetti drops on the phone screen after investments.
The strategy proved to be a massive hit as Robinhood become synonymous with retail trading for inexperienced newbie investors. The platform was also at the center of the Gamestop short-squeeze frenzy in early 2021 that was surprisingly coordinated on a subreddit by amateur investors.
The surge in retail demand garnered millions of users for the platform, from half a million in 2014 to 22.8 million as of March 2022. The company even went public with a massive hue and cry on a US stock exchange.
SEC in Action
But the practices of the so-called gamification of trading were not hidden from the US regulators. The Securities and Exchange Commission (SEC) initiated a formal probe last year on platforms implementing a game-like trading environment.
“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,” SEC’s Chair, Gary Gensler then said. His concerns were that these trading platforms encourage inventors “to trade more often, invest in different products, or change their investment strategy.”
The SEC even collected public input on the “gamification of trading”, but said in a consecutive report that these platforms need further investigation.
But the SEC is not alone to worry about the rise of the Robinhood-like trading platforms. The age-old industry players also take note of it and are often more critical of the practices.
“At the recent Berkshire Hathaway annual meeting, Warren Buffett said Robinhood has ‘become a very significant part of the casino aspect, the casino group, that has joined into the stock market in the last year or year and a half’,” Robert Johnson, Chairman and CEO at Economic Index Associates, pointed out to Finance Magnates.
Robinhood is already witnessing a drop in demand from its user base. The pandemic-related frenzy is wearing off from the retail trading market and so is the volatility
Volatility
In finance, volatility refers to the amount of change in the rate of a financial instrument, such as commodities, currencies, stocks, over a given time period. Essentially, volatility describes the nature of an instrument’s fluctuation; a highly volatile security equates to large fluctuations in price, and a low volatile security equates to timid fluctuations in price. Volatility is an important statistical indicator used by financial traders to assist them in developing trading systems. Traders can be successful in both low and high volatile environments, but the strategies employed are often different depending upon volatility. Why Too Much Volatility is a ProblemIn the FX space, lower volatile currency pairs offer less surprises, and are suited to position traders.High volatile pairs are attractive for many day traders, due to quick and strong movements, offering the potential for higher profits, although the risk associated with such volatile pairs are many. Overall, a look at previous volatility tells us how likely price will fluctuate in the future, although it has nothing to do with direction.All a trader can gather from this is the understanding that the probability of a volatile pair to increase or decrease an X amount in a Y period of time, is more than the probability of a non-volatile pair. Another important factor is, volatility can and does change over time, and there can be periods when even highly volatile instruments show signs of flatness, with price not really making headway in either direction. Too little volatility is just as problematic for markets as too much, we uncertainty in excess can create panic and problems of liquidity. This was evident during Black Swan events or other crisis that have historically roiled currency and equity markets.
In finance, volatility refers to the amount of change in the rate of a financial instrument, such as commodities, currencies, stocks, over a given time period. Essentially, volatility describes the nature of an instrument’s fluctuation; a highly volatile security equates to large fluctuations in price, and a low volatile security equates to timid fluctuations in price. Volatility is an important statistical indicator used by financial traders to assist them in developing trading systems. Traders can be successful in both low and high volatile environments, but the strategies employed are often different depending upon volatility. Why Too Much Volatility is a ProblemIn the FX space, lower volatile currency pairs offer less surprises, and are suited to position traders.High volatile pairs are attractive for many day traders, due to quick and strong movements, offering the potential for higher profits, although the risk associated with such volatile pairs are many. Overall, a look at previous volatility tells us how likely price will fluctuate in the future, although it has nothing to do with direction.All a trader can gather from this is the understanding that the probability of a volatile pair to increase or decrease an X amount in a Y period of time, is more than the probability of a non-volatile pair. Another important factor is, volatility can and does change over time, and there can be periods when even highly volatile instruments show signs of flatness, with price not really making headway in either direction. Too little volatility is just as problematic for markets as too much, we uncertainty in excess can create panic and problems of liquidity. This was evident during Black Swan events or other crisis that have historically roiled currency and equity markets.
Read this Term. The revenue of the platform drastically dropped from its early 2021 peaks. Its Q1 2022 revenue came in at $299 million, which is almost a 43 percent yearly decline.
The platform is now also focusing on crypto trading and even acquired a UK crypto-startup recently.
Johnson further said: “Many of these millennial investors started participating in the financial markets because they were provided pandemic payments and were locked down during the pandemic and turned to trading stocks and crypto for entertainment. These apps actually compete with gaming apps such as Draft Kings for consumer mindshare. As markets rose in value, these individuals concluded that there was easy money to be made in these markets and participated at higher and higher levels.”
Many inexperienced retail investors believe that Robinhood democratized trading by extremely lowering the entry barrier. But Johnson believes that the platform has “democratized speculation.”
Europe Is Strict
While the American regulator did not conclusively make any statement on the gamification of trading, its European counterpart is poised to bring curbs on such practices.
The ESMA issued a clear advisory to the European Commission asking for curbs on the gamification of trading. It came as a larger effort of the regulator to further strengthen investor protection.
“Gamification techniques in trading apps and personal recommendations on social media may cause retail investors to engage in trading behavior without understanding the risks involved,” ESMA’s Chair, Verena Ross said.
However, the regulator did not detail how it wants the implementation of curbs on these platforms. Whether these platforms will have to display a compulsory risk warning or have to bring design changes, only time will tell.
Kalkine’s CEO, Kunal Sawhney thinks that the regulatory intervention in the area “will be a long-drawn battle as it can’t be restrained overnight. The proliferation is much wider to rein in the already rampant ‘gamification of trading’ phenomenon.”
“If the curbs come into effect, many gullible investors would be saved from inadequate disclaimers and disclosers influencing them into making wrong investments,” he added.
“These apps highlight trending stocks and often compel investors to buy under duress. So, curbing this trend will save money for investors. The lottery incentives run by these apps also muddle people’s minds and they fall into these traps more often. So, curbs will safeguard the investors who are already neck-deep into ‘gamification of trading’.”
Whatever might be the regulatory discourse, any curbs on the gamification of trading will definitely heighten investor protection. After all, investment is not a game or even gambling.
Source: https://www.financemagnates.com/forex/regulation/will-curbs-on-the-gamification-of-trading-end-retail-demand/