New to investing? UCalgary professor warns about trading apps designed like games

Confetti. Achievement badges. Congratulatory messages.

Those are some of the "gambling-like incentives" included in many trendy trading apps that a finance expert at the University of Calgary's Haskayne School of Business is warning young or inexperienced investors about.

With online trading apps gaining popularity since the pandemic, associate professor of finance Marius Zoican said he wants people to be aware about how these features can affect their behaviour and potentially lead them to make poor financial decisions.

"The nudges are quite efficient in making people trade more, and they make people trade more randomly," said Zoican.

That's what he found during a randomized online experiment he recently conducted with his research team, where people used two trading platforms his team created — one with gamified features and the other without.

"People with stronger financial literacy — so they have more experience, they have taken a course in finance or they have financial education — they are less likely to respond to these gambling-like incentives."

He said it doesn't mean people shouldn't participate in the stock market or take risks. He said the apps aren't the problem, and ultimately, it's a positive byproduct that the apps are opening the market to more people.

But he wants young and new investors to be aware of their behaviour when they use the platforms, and not get enticed by the lure of getting rich quick.

"In financial markets, the more you trade, the more the odds are stacked against you because 99.9 per cent of the time you are trading against professionals who might not be smarter than you, but they have the tools and the time to analyze the stocks and find patterns."

It benefits companies when people trade more actively because it allows them to collect trading and exchange fees, and get a larger kickback when they sell orders to banks, said Zoican.

Instant gratification

It's a phenomenon that Calgary-based financial coach and certified public accountant Jolie Viguers has been keeping an eye on.

"I worry about my kids who are just starting their investment journeys at ages 18 and 20, and how that can be such a dopamine-enriched environment that will encourage that kind of behaviour," said Viguers.

"Investing shouldn't be about instant gratification. It is supposed to take time."

It isn't just young people who are lured in by promises of instant gratification. She said she often hears from clients — most of whom are women — whose partners have gotten into active investing.

She said building financial literacy should always be people's first step when it comes to investing. She recommends speaking with a bank advisor, taking free personal finance courses and reading beginner investing books.

And with young people turning to social media for financial advice, Viguers said she's been educating her kids about ensuring they're trusting reliable sources with proper credentials — not people who are selling products or solely trying to get views.