OSC Urges Stricter Rules on Gamified Investing Features

Report | Oct 31, 2024

Image: Gamification Revisited (OSC)

New OSC Research on How Gamification Features Affect Investor Behaviour

As more retail investors open up accounts to invest, trade, and in some cases even save on digital fintech platforms, many apps are adding gamification features to make trading more interactive and accessible.  However a new experimental research study conducted by the Ontario Securities Commission (OSC) called "Gamification Revisited: New Experimental Findings in Retail Investing" shows these these Digital Engagement Practices (DEP) are pushing retail investors to take more risks.

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The report was published in October and builds on the OSC’s 2022 study by taking a closer look at four main gamification tools including social feeds, copy trading, leaderboards, and social norms messaging. The study reveals new insights into how gamification shapes trading decisions and investor behaviours, making recommendations on how to make gamification features safer for investors.

Who Participated in the Study?

2,430 retail investors participated in a controlled research setting, representing a broad cross-section of typical retail investors. The investors participated in a simulated trading environment where each group interacted with different gamification features. By analyzing how each feature affected trading frequency, risk taking, and decision-making, the OSC gained fresh insights into how DEPs are shaping investor behaviours.

Key Findings

1. Social Feeds Increase Trading by 11%

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• Real time social updates showing or talking about other people's trades led participants to trade 11% more often.
• Many were influenced by seeing other traders actions which influenced their trade decisions (rather than doing their own research).

2.  Copy Trading Increases Risky Trading by 60%

• The ability to mirror top investor trades raised high risk trading by 60% (probably due to misguided confidence).
• The problem is with these copy cat risky trades is that retail traders don't fully understanding the potential downsides.

3.  Leaderboards Slow Down Trading by 9%

• Leaderboards that rank investor performance actually lowered trading frequency by 9%.
• The thinking here is that by reviewing all the top portfolios, traders paused avoiding quick decisions.

4.  Social Norms Messages to Encourage Cautious Investing

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• Messages promoting common investing habits like investing with a long term strategy encouraged more thoughtful trading decisions.

• These types of 'best practice' social norms led to fewer impulse choices.

5.  47% of Investors Were Concerned About Gamification Features

• Specifically, social feed updates and copy trading made investors feel more like they were gambling than investing.
• While gamification may make platforms more engaging/exciting, they run the risk of promoting a short term mind-set which encourages impulse tradeing rather than being a more strategic, long term investor.

OSC Recommends Balancing Engagement with Responsibility

The OSC made the following recommendations aimed at making gamification safer for investors.

• Update regulatory rules to protect investors. Regulators should look at current rules on digital engagement practices and consider changes, especially for any features that shown harm to investors.
• Platforms might need restrictions on certain engagement tools like points systems, top traded lists, social feeds, and copy trading since they can compromise investor safety.

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• Both regulators and platforms are encouraged to keep collecting data research on how these features impact investor behaviour to help guide future rules and platform choices.

Conclusion

While gamification can make investing more engaging, it can also encourage risky habits. Balancing engagement with responsibility will be key to helping investors make smarter, longer term choices.

The National Crowdfunding & Fintech Association (NCFA Canada) is a financial innovation ecosystem that provides education, market intelligence, industry stewardship, networking and funding opportunities and services to thousands of community members and works closely with industry, government, partners and affiliates to create a vibrant and innovative fintech and funding industry in Canada. Decentralized and distributed, NCFA is engaged with global stakeholders and helps incubate projects and investment in fintech, alternative finance, crowdfunding, peer-to-peer finance, payments, digital assets and tokens, artificial intelligence, blockchain, cryptocurrency, regtech, and insurtech sectors. Join Canada's Fintech & Funding Community today FREE! Or become a contributing member and get perks. For more information, please visit: www.ncfacanada.org

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