The FCA has found that certain groups are more open to risk taking in trading apps and increase their usage when enticed by digital engagement practices (DEPs) like push notifications and prize draws.

The regulator built an experimental trading app platform and tested its effects on a sample of 9,000 people. The number of trades made went up when push notifications and points and prize draw increased, by 11% and 12% respectively, while trades categorized as “risky” increased 8% and 6% respectively.

Flashing prices and trader leaderboards were also likely to attract those with low financial literacy into risky trading. 

DEPs were found to have a disproportionately large impact on those with low financial literacy, women, and users aged 18 to 34. 

“We want firms to ensure that promotions provide a balanced view of the benefits and risks, and clearly communicate information that will help consumers make effective, well-informed decisions.”

FCA

The FCA has in the past warned consumers about the risks of gamification and persuasive system design, particularly ahead of the implementation of the Consumer Duty on July 31, 2024.

The regulator said firms 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.”

Several cases have emerged involving “finfluencers”. Nine were charged in May for promoting FX and CFDs on social media.

To combat this, in March the FCA published guidance on financial promotions on social media. “We want firms to ensure that promotions provide a balanced view of the benefits and risks, and clearly communicate information that will help consumers make effective, well-informed decisions”, it said.

Trading apps increased in popularity during the COVID lockdowns. Forecasts say the global online trading market will increase at a global compound annual growth rate of 6.4% per year, growing to an estimated $13.3 billion in 2026, up from around $10.21 billion in 2022. Major platforms include eToro, Trading212, and Robinhood.

“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,” Sheldon Mills, Executive Director of Consumers and Competition at the FCA, said.  

“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.”