Subscribe
Sign in
Some trading platforms are encouraging investors to gamble on risky products such as derivatives and cryptocurrency using prize draws and frequent push notifications, a new report from the Financial Conduct Authority (FCA) has warned.
This can lead to “adverse financial outcomes” and what the report called “potentially problematic engagement” behaviours, such as excessive trading frequency, while also pulling people into riskier investments than they are comfortable with.
An academic paper published by the FCA surveyed the frequency with which investment platforms used digital engagement practices (DEPs) to influence consumer behaviour and how this impacted investment outcomes. DEPs are design features used to engage DIY investors, and include game-like elements on trading apps, such as trader leader boards, prize draws or celebratory messages when a trade is made.
The academics ranked platforms as low, medium and high users of DEPs, and found “both realised and unrealised returns are significantly worse among consumers participating on the high DEP apps”. The report did not name individual platforms.
Dr Philip Newall, a lecturer at the University of Bristol, who specialises in gambling psychology, described trading apps as “the latest potential gambling public health crisis”.
“Trading apps provide the classic gambling lure of offering big potential wins but actually providing losses for the vast majority of users, with up to 89 per cent of CFD [contracts for difference] users losing money annually,” he said.
Investors are also more likely to sustain large losses, defined here as more than 2 per cent of a user’s pro rata net income, if they use high DEP apps.
CfD platforms often warn users of the risks and often do not allow UK retail users to lose more than they invest, which can happen when placing highly leveraged bets on price movements.
At the same time, companies operating in the UK such as Plus500 (PLUS) and CMC Markets (CMC) – neither is named in the report – offer investors “endless trading opportunities” and 1:20 leveraged trades where “you can start trading with as little as £100 to gain the effect of £2,000 capital”, in the words of Plus500.
Fund options for a weaker dollar
How to profit from the great bond sell-off
How investors should respond to Trump’s tariffs
Those using high DEP apps are also more likely to sustain large losses than investors on low or medium DEP options, defined here as more than 2 per cent of a user’s pro rata net income.
The rate of large losses was 4.8 percentage points higher for users of high DEP platforms than low DEP platforms.
Added to this, investors trading on high DEP platforms were twice as likely to engage in gambling-like behaviour.
This was identified in part by the frequency with which app users engaged with the trading platform, leading to a higher number of trades placed, and users’ preference for investing in high-risk products such as cryptocurrencies and CfDs.
The academics did caution that the study results should not be used as direct evidence that the high DEP platforms cause losses. “Individuals with existing financial distress and precarity may be more likely to use high DEP apps as compared to other apps,” the authors said, adding that the users might also have poor financial literacy.
Raminta Diliso, project manager for financial harm charity GamCare, said: “The constant availability of these platforms and the gamification of some of the features, as well as the volatility of some of the investments, has blurred the line between gambling and investing.”
Over a fifth of high DEP platform users logged on to their apps more than 50 times per month, according to the FCA, compared with 10 per cent of medium DEP platform users and 7 per cent of low DEP platform users.
High DEP platform users were also more likely to trade at night and to make ad hoc deposits and withdrawals, behaviour that can signal the app user has a gambling problem.
“The patterns of concerning behaviour that we see in gambling could be applied in the context of risky trading as well. So you would be looking at things like spikes in deposits, investing late at night or loss chasing,” Diliso said.
Elevated platform engagement was found to lead to increased trading, with the average high DEP app user making seven times more trades than the median low DEP platform user.
The asset classes promoted on high DEP platforms also encouraged problematic investing behaviour and were the driving force behind the lower returns sustained by investors, the paper argued.
Of the platforms surveyed, only the high DEP platforms offered crypto assets and CfDs. “One of the key mechanisms through which DEPs could cause harm is by encouraging users to trade in products that are beyond their risk appetite,” the regulator said.
Diliso noted that CfDs and cryptocurrencies are the two financial products that come up most frequently in calls to the National Gambling Helpline.
She also pointed to an overlap between those investing in high-risk assets and those who struggle with more traditional gambling products.
“We ran a study which found those gambling at harmful levels were almost five times more likely to own cryptocurrency than the general population. I think there’s a huge crossover between people who are gambling harmfully and trading harmfully,” Diliso said.
National Gambling Helpline advisers have also reported incidents where people who have previously contacted the helpline for advice on gambling issues have got back in touch after realising their investing behaviour has strayed into gambling.
“They didn’t see trading as a problem. But they moved from one compulsive behaviour to the next,” Diliso added.
