The Effects of Casino-Like Trading Apps on Users
Richard Montana | February 15, 2022
Problem gambling outreach agencies were created to support gambling addicts. They recently received a new kind of caller: the day trader.
Independent brokers have numbered more and more individuals among them in recent times, with the appearance of user-friendly apps. These platforms permitted independent traders to participate in day trading with little to no prior experience, formal preparation, or affiliation.
However, the unexpected effect of their functioning methods were behaviours akin to gamblers’ problematic and addictive practices.
We will investigate the convergence of day trading and online gambling in presentation, dynamics, and effects on participants’ psyches.
The Rise of the Independent Day Trader
Online trading or eTrading, in tech-savvy jargon, is a new phenomenon. It is closely tied to the appearance of platforms that permit individuals unaffiliated to financial institutions to influence markets.
The current size of the global eTrading market, albeit still being relatively small, is garnering more popularity. It currently is valued at approximately $8.28 billion. The two most popular platforms utilised by day traders, Robinhood and Webull, receive 3.23 million and 2.69 million monthly downloads, respectively.
The GameStop Event
Online day trading has also had its entry into the collective cultural conscience, with the now-famous GameStop stock frenzy. Around January 2021, the share price of the dwindling GameStop business saw a staggering 1500% increase. However, this shocking development was not fuelled by Wall Street, Gordon Gecko types. Instead, small investors gathered and communicated on social media platforms like Reddit, Twitter, and even 4chan.
The story was framed as an all-out war between big money financial cronies and a loose coalition of like-minded small-time day trading underdogs. The actual reality of the situation was anything but a noble fight against the establishment. The GameStop-supporting crowd received support from one-percenters, most notably, Elon Musk.
More importantly, for the gambling day trading connection, the mass buy was orchestrated by a Reddit group called WallStreetBets. Thus, day traders treating the market like a big betting event is more frequent than the average Joe would believe. One question arises: beyond organised groups like WallStreetBets, does the average day trader see the activity as gambling? More so, is the relationship between eTrading and games of chance conscious, or not?
Gambling in eTrading
The global iGaming (short for online gambling) industry is set to reach $92.9 billion in market value by 2023.
Several high-profile companies that provide gambling solutions are listed publicly on various stock exchange markets. iGaming virtually towers, in estimated value, eTrading. Simply put, it is many times more lucrative to develop an online casino than it is to provide a day-trading app. Nonetheless, eTrading is still in its infancy, allowing new up-and-coming operators to make a name for themselves.
We can single out this situation, together with the natural affinity between the two risk-based monetary activities, to be the reason behind so many eTrading platforms adopting attitudes and marketing strategies that are more at home in iGaming.
The Problematic Practices
Experts will point out how certain day trading apps strongly hinge on gamification to foment customer activity.
The role of gamification is hooking and holding participants to – let us call them – less-than-transparent design decisions. These are aimed at quote-one-quote, rewiring the brain via habit enforcement, classical, and operant conditioning.
In layman’s terms, the apps in question use flashy game-like cues and stimuli to reinforce certain voluntary behaviours. These behaviours are often to the detriment of day traders and the benefit of app operators.
iGaming: The Pioneer of Gamification Practices
Gambling has previously been the prime example of such psychologically charged practices. Both venue and remote casino operators designed each concept, from the soundscape to the visuals and interactive systems, to create Pavlovian response loops in their customers.
iGaming has only pushed these attitudes into overdrive. The online environment provides the infrastructure for extended gamification of already issue-ridden gambling activities.
Spill Over into eTrading
The recent increase in day trader calls to problem gambling hotlines has drawn attention to the eTrading apps’ adoption of literally carbon copy design decisions.
Robinhood, arguably the largest eTrading app on the current market, welcomed new users with a scratch-off bonus feature that provided a free share upon registration. This example is just one of the many instances in which day trading apps adopt gambling-type functions to draw in and maintain a user base.
If Robinhood’s success indicates anything, it is that gamification works even for activities that most participants see as serious job-like occupations.
No wonder then that the US National Council on Problem Gambling has already coined a fitting term for the influx of problematic day traders into gambling issue-related outreach programs: the Robinhood effect.
The convergence of recent trends in eTrading towards something akin to online gambling is not coincidental. One can draw more parallels between day trading and games of chance than other supposedly related financial jobs. For instance, just like gamblers, most day traders are underperforming, with only a meagre 1.6% being profitable.
The Problem is Deeper
Case closed, some might say. The gamification present in many day trading apps create effects similar to problem gambling by conditioning detrimental behaviours.
However, the issue may go beyond recent eTrading design and marketing practices. One comprehensive study confidently tied personal investors’ stock market trading frequency to behavioural addiction to gambling-like activities.
This is damming proof as it seems to indicate that retail traders, at least in part, are prone to problematic conduct. The fact that eTrading presents itself as a serious activity, far removed from games of chance, further obscures the obvious parallels.
The Need for Financial Literacy: An Optimistic Outlook
Is this the final nail in the coffin of independent personal stock trading? Optimists may point to financial literacy as the main issue. “Stock market gamblers” are just uninformed or downright illiterate chaotic agents trading large volumes of low-value transactions, looking for a quick buck.
There is some truth to this angle. In the context of gambling frequency, recent findings show that problematic behaviours are mitigated by promoting financial literacy. However, researchers could not conclude in the case of financial education.
Day trading could similarly benefit from more transparency and the promotion of literacy.
The Problem May Be Elsewhere
The situation of day trading apps can be resumed, certainly by more pessimistic types, to the age-old association of stock market with gambling-like behaviours.
Essentially, all brokers are incentivised to speculate on stocks they perceive to be mispriced due to incomplete information. This approach turns trading, both big and small-time, into a predictive activity hinged on limited data, or in a word, gambling.
Going by these interpretations, eTrading apps only fuel a pre-existing fire. This case proves even more aggravating since the clearly stated intent of balancing out the damaging effects of prominent hedge fund managers and financial brokers. See the older definition of the Robin Hood effect: the wealth redistribution from wealthy to poor. However, the problem might need to be sought elsewhere, and so should the solution.