PrefBlog

So apparently, the Powers That Be are annoyed at brokers encouraging stupid trading:

Gamification is the practice of incentivizing users to trade more frequently or in larger amounts by adding game-like features to trading platforms. Competitive features such as leaderboards, which display the names of users who do the most trades per day, or images of badges or bursts of confetti that reward a first trade in a margin account or a family referral, are encouraging investors to trade more often.

As well, the OSC found investors who were shown lists of “top-traded” or “most popular” stocks were 14 per cent more likely to buy and sell the company shares that they are nudged toward. Top-stock lists promote “herding” behaviour – where a person follows what others are doing rather than deciding independently.

Herding can result in “significantly poorer” returns for investors, the report said, citing a separate study that showed an average 20-day return of minus 4.7 per cent for top stocks purchased each day. That’s because herding increases trading frequency, and can shift investors into higher-risk securities.

I’ll take this initiative seriously when they start cracking down on brokers encouraging stop-loss orders and making market orders the default.

This entry was posted on Thursday, November 17th, 2022 at 11:53 pm and is filed under Market Action. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.