Gamification: investing is not a game

Enticed by the promise of investing in a simple and quick manner, you embarked on the adventure of online trading platforms. Over the weeks, you dedicate more and more time to them and make more transactions, which erodes the long-term performance of your investments. The reason? You are likely a victim of gamification mechanisms exploited by your trading platform. What exactly is it and how can you protect yourself from it? myLIFE offers you some answers.*

Have you ever wondered if you are truly doing yourself a favour by managing your investment portfolio yourself? Indeed, unless you are a seasoned investor, it is difficult to remain in control of your emotions in the face of market movements. And one of the most visible symptoms of this lack of emotional management is certainly excessive trading or overtrading.

Overtrading

Since you started investing directly on a trading platform, do you monitor stock prices more closely, react to multiple notifications, and feel a constant urge to make new transactions? If the answer is yes, it is likely that your trading platform is exploiting mechanisms known as gamification. These mechanisms, inspired by gambling and social networks, aim to create a form of behavioural addiction that manifests as a cycle of dopamine-driven addiction. Caught in this game, there is a high probability that you will fall into excessive trading. This inevitably erodes the long-term performance of your investments.

Overtrading is characterized by a high volume of transactions, sometimes disproportionate to a rational investment strategy. Instead of maintaining a long-term vision, the investor succumbs to the illusion of market timing and tends to take frequent positions, hoping to capitalize on all market fluctuations. Studies have shown that this behaviour harms the return on your investments due to high transaction fees and the multitude of judgment errors, particularly due to overconfidence (Barber and Odean, 2000). Moreover, the dopamine generated by the risk associated with each stock position and the uncertainty of results encourages a form of dependence on overtrading. Dopamine is an essential neurotransmitter in the brain’s reward circuit. Every time a transaction results in a gain, your brain releases a “dopamine spike,” producing a sensation of pleasure. As with compulsive casino players, the anticipation of this pleasure drives the investor to constantly seek new transactions to regain this dopaminergic rush.

To be clear, when investing on your own, it’s important to keep a cool head. The problem is that modern online trading platforms exploit this quest for reward by multiplying signals (push notifications, badges, animations, etc.) that urge you to open your app and take new positions without much thought. This is referred to as behavioural addiction, a phenomenon already well identified in other fields, such as social networks or gambling.

The ground is even more fertile when considering cognitive biases such as overconfidence. An individual may, over a short sequence of transactions, attribute their success to their own skills rather than external or random factors. Encouraged by positive notifications and the recognition they receive from the platform (badges, congratulations, etc.), they will multiply operations. Combined with transaction costs, this excess of confidence ultimately weighs heavily on the profitability of the portfolio.

Combined with transaction costs, this excess of confidence ultimately weighs heavily on the profitability of the portfolio.

Published in November 2023, the study “Gamification and Copy Trading in Finance” conducted over four years by the French Financial Markets Authority (AMF) reveals that more than 89% of active clients suffered losses, with an average loss of €10,887 per client. These figures suggest that many users, potentially beginners, face difficulties in generating profits on these platforms. It’s not without reason that myLIFE urges you to seek expert advice on the subject, especially if you are still a novice in investment matters.

Understanding the behavioural mechanisms of gamification

It is not necessary to demonize online trading platforms. They are interesting tools as long as you know how they work and are clear about the behavioural mechanisms they exploit to reinforce the cognitive biases that boost your commitment. Indeed, it is essential not to become addicted to what resembles a game but is not one: your money and your future financial well-being are at stake!

Here is a non-exhaustive overview of the techniques used by trading platforms to help you understand them and avoid becoming their victims.

1. Gamblification

“Gamblification” draws from the codes of gambling. Users are offered variable and random rewards, such as virtual scratch tickets or lotteries to obtain free stocks. These mechanisms strongly resemble lotteries where the rarity of a potential gain generates significant excitement.

• • Concrete example. Some platforms randomly assign a “surprise stock” with a value ranging from a few euros to several hundred euros. This uncertainty triggers curiosity in the investor and the desire to try their luck again.
  • Behavioural impact. The user is encouraged to return regularly in the hope of “hitting” the next gain. They then seek to maintain a high level of trading to maximize their chances of reward.

Due to social comparison, many investors seek to imitate the top performers (Copy Trading), even if they do not properly assess the risk taken by these current “leaders.”

2. Leaderboards and Copy Trading

Leaderboards display the performance of certain traders, often based on short or medium-term returns. Due to social comparison, many investors seek to imitate the top performers (Copy Trading), even if they do not properly assess the risk taken by these current “leaders.”

• • Concrete example. The CFA Institute (2022) notes that when platforms highlight the “Top 5” best traders over a month, an increase in copied positions is observed, amplifying speculative behaviours.
  • Behavioural impact. Novice investors are enticed by the illusion of quick returns, massively following a minority of traders who may have bet on highly volatile assets. This sometimes leads to herd behaviour and a dangerous knock-on effect, both for the individual investor and for market stability.

3. Symbolic rewards (points, badges, trophies)

Points and various badges received on platforms are non-monetary rewards given for completing specific actions (daily login, first transaction, recommending a friend, etc.). Their real monetary value is often negligible, but they have a significant psychological impact by valuing the user and thus enhancing their engagement.

• • Concrete example. Obtaining a badge for the “first successful transaction” creates an emotional attachment to the platform, encouraging more trades to collect other distinctions.
  • Behavioural impact. The feeling of progress and recognition pushes the user to minimize, or even ignore, risk considerations, mainly because they focus on obtaining badges rather than rigorously evaluating each transaction. Does that make you smile? Be cautious, it doesn’t only happen to others.

4. Notifications and attentional stimuli

These devices consist of sending messages or alerts aimed at drawing the user’s attention to a trading opportunity or a significant change in the market. They can take the form of push notifications or banners integrated into the application. Mobile apps regularly send notifications to signal a price movement, a new opportunity to seize immediately, or the performance of a “flagship” stock.

• • Concrete example. The AMF recently warned against the effect of “Top Movers” notifications that encourage investors to act within the minute, without taking the necessary step back before deciding.
  • Behavioural impact. The perceived urgency triggers impulsive decisions. The user feels the “fear of missing out” (FOMO), which drives them to increase their connection frequency and succumb to overtrading.

How to regain control?

The behavioural techniques used by trading platforms are powerful incentives to take action. The good news is that it is possible to create safeguards against temptation and thus use trading platforms responsibly. Here is an action plan to stay in control of your investments.

1. Develop an investment strategy

Establishing a clear long-term plan (risk profile, objectives, investment horizon) based on your life goals is essential. An investor with a predefined strategy will be more inclined to resist the temptations of immediate gratification.

• • Practical advice. Set a limit on the number of transactions not to exceed per week or per month. This may seem a bit artificial, but it has the merit of introducing voluntary friction that curbs impulsiveness.

Set a limit on the number of transactions not to exceed per week or per month. This may seem a bit artificial, but it has the merit of introducing voluntary friction that curbs impulsiveness.

2. Regulate the stimuli

Instead of undergoing all the notifications and signals emitted by the platform, regain control by defining how to manage them.

• • Disable or customize alerts so that they only appear in case of major events and according to your investment strategy.
  • Schedule “trading windows” during which you analyse the market, rather than continuously reacting to each alert.

3. Keeping a trading journal

Writing a trading journal forces you to curb your impulsivity in response to stimuli from your trading platform. Systematically note:

• • the reasons for each position taken (technical analysis, fundamental reasoning, market sentiment).
  • your emotions (feelings of euphoria, fear, urgency).

Regularly revisiting this journal allows you to better detect your cognitive biases (overconfidence, herd behaviour) and adjust your behaviour.

4. Deepening one’s knowledge

A lack of financial education often contributes to impulsive behaviours. The less one knows, the more likely one is to react without much thought to an external stimulus. It is therefore crucial to:

• • Regularly educate oneself (webinars, articles, books) to better understand the functioning of markets, different asset classes, and transaction fees.
  • Consult diverse and critical sources to counterbalance the “playful” vision offered by the platform.

5. Seek an outside perspective

An independent financial advisor or an experienced acquaintance can greatly help you question your practices and keep a cool head. In case of doubt, a neutral eye will help distinguish between a real opportunity and a mere „dopamine hit” induced by gamification mechanisms.

Very common among investors, overtrading is a harmful phenomenon for the long-term performance of your investments. With a playful design and using gamification techniques, some trading platforms encourage this behaviour by exploiting our cognitive biases and the reward circuit linked to dopamine. To avoid traps, make sure to develop a clear investment strategy and maintain a certain critical distance. Trading is not a game. Never sacrifice your long-term goals on the altar of instant gratification. To avoid this trap, there is a simple solution: entrust the management of your investments to a professional.

* Content translated from French by the BIL GPT AI tool