Gamification features such as push notifications and prize draws used by trading apps can increase risk taking among users, according to research from the Financial Conduct Authority.
The UK watchdog built an experimental trading app platform to test the effect of different digital engagement practices (DEPs) on trading behaviour and then enlisted 9000 people for the experiment.
It found that push notifications increased the number of trades made by 11%, while points and prize draws led to a 12% rise. Push notifications and points and prize draw increased the proportion of trades that were in risky investments by eight per cent and six per cent respectively.
In addition, DEPs have a larger impact on people with low financial literacy, women and younger Brits.
The UK regulator has already taken action to tackle gamification in the new wave of retail trading platforms through its Consumer Duty, which says that apps must ensure services are designed and tested so they meet consumers' needs and enable them to make effective, timely and properly informed investment decisions, including for those with characteristics of vulnerability.
Sheldon Mills, executive director, consumers and competition, FCA, says: "Trading apps have the potential to transform retail investments, but some in-app features might be pushing consumers towards more frequent or riskier trading, which isn’t right for everyone.
"With usage and popularity of trading apps growing, we’ll be keeping them under review to make sure customers can make investment decisions that suit their needs."