Trading apps allow investors to trade directly and easily in a range of products, including fractional shares and high-risk investments such as crypto assets.

Its research revealed that in just the first four months of 2022, over a million accounts were opened with four trading app firms – nearly double the amount opened with all other retail investment services combined.

However, the Financial Conduct Authority (FCA), said it is concerned about the ‘gamification’ of trading apps and their role in “engaging consumers for the worse”.

Gamification is the use of game design elements to make tasks more engaging and attractive, such as the jumping green owl celebrating your achievement when completing a Duolingo language lesson.

But it said these “sludge” design practices may prevent people making their own decisions in their own interest and its use in trading apps “suggests it can sometimes play a role in driving poor outcomes for consumers”, the FCA said.

Trading app gamification

The regulator said it was clear “an extensive behavioural design toolbox” had been used to create some of the apps it researched.

In one example, positive reinforcement was used immediately after a trade, such as a celebratory message and falling confetti.

It also saw examples of points, badges and rewards for undertaking certain behaviours and leader boards which range people based on these rewards.

“We are concerned that these positive reinforcements may encourage people to trade more frequently or make investment choices that they otherwise wouldn’t,” the FCA wrote.

Meanwhile, it found frequent push notifications with the latest markets news on stock movements and drew investor attention to real-time price changes by flashing red and green, as well as those that had seen the largest price movements in the last 24 hours.

“We are concerned that giving information to consumers in this way may lead them to pay attention to spurious information and make investments which are not in their interests,” the FCA added.

It said previous research found that these push notifications “can stimulate people to trade in a riskier way”, using higher leverage and trading larger amounts, with the biggest impact on younger and less experienced investors”. It added that investors could also make poorer returns as a result.

In another example, it found default trading amounts were much higher, and the concern here is that investors are much more likely to stick to default amounts rather than setting their own limits.

The FCA added: “We are also concerned that the app features may blur the lines between online investing and gambling-like behaviours. Previous FCA research has shown that for many younger, new investors, emotions such as thrill and excitement are key drivers for investing.”

Review design features

The regulator has warned stock trading app operators to review design features, including those with game-like elements, which risk prompting investor to take actions against their own interest.

It said that while gamification can be used to engage investors positively, it has found it being used in ways that may mislead investors or lead to poor outcomes and problem behaviours.

Sarah Pritchard, executive director of markets at the FCA, said: “Some product design features could be contributing to problematic, even gambling-like, investor behaviour. We expect all firms that offer stock trading to consumers to review and, where appropriate, make improvements to their products based on these findings. They should also ensure they are providing support to their customers, particularly those in vulnerable circumstances or those showing signs of problem gambling behaviour.”

The FCA added it intends to carry out further research into trading app use and their design features, including whether investors borrow to invest and to see the scale of any losses.

It comes as its 2022 Financial Lives Survey found 9% of all adults with investments have borrowed to invest and 49% of these would not have been able to make the investment without doing so.