The Ontario Securities Commission (OSC) has launched a new trading simulation tool for investors to test how online gamification tactics can influence their investing behaviour.
The Get Smarter About Trading simulator provides retail investors with a chance to participate in a simulated stock market and practice online trading.
It exposes users to gamification techniques to show them what could be influencing their investing behaviour, according to Leslie Byberg, Executive Vice President, Strategic Regulation at the OSC.
As digital trading platforms have grown in popularity, regulators around the globe are alert to the usage of digital engagement practices (DEPs) within these platforms, according to the OSC.
“Digital investing platforms are increasingly popular and make it easier for retail investors to participate in financial markets, but there is growing regulatory concern over the use of gamification techniques on these platforms,” Byberg said.
In addition, the OSC has released a new report that studied the impact of gamification on investors.
The report, Gamification Revisited: New Experimental Findings in Retail Investing, looks at whether promoting certain assets on digital investing platforms presents a risk to investors.
“The research along with the GetSmarterAboutTrading tool will help people better understand the impact of gamification techniques on their trading behaviour and help investors make more informed decisions,” Byberg said.
The OSC conducted an experiment where participants received virtual “money” to invest in fictional stocks on a made-up trading platform.
Participants took part in simulated trading where stocks were promoted in different ways.
The research found two types of promotion had a significant impact on participants’ trading behaviours; those who saw promoted stocks featured on a social feed traded 12% more in those stocks, and those who had the option to copy the trades of a “high performing” user traded 18% more in the promoted stocks.
The findings suggest that these social engagement techniques can influence investor behaviours by encouraging trading in specific assets.
This influence is likely to have a negative impact, potentially through under-diversification or excessive risk taking.
The new report builds on the work of an earlier OSC research report Digital Engagement Practices in Retail Investing: Gamification and Other Behavioural Techniques.
The 2022 report included the results of an online experiment showing the impact of “points” and “top-traded lists” on user trading.
The experiment found participants rewarded with points for buying and selling stocks made 39% more trades and those who saw a list of top traded stocks were 14% more likely to buy and sell those stocks. More frequent trading generally has a negative impact on investor returns.
This report also contains several recommendations for how regulators and authorities in Canada and abroad might respond to the ongoing use of digital engagement practices by online investing platforms.
The OSC said that authorities in Canada and abroad should continue to consider whether updates to regulations and guidance for the usage of DEPs by investing platforms are required, with particular attention paid to techniques that, through high-quality research, have been demonstrated to harm investors.
“Regulators could also consider whether to limit digital trading platforms from using tactical applications of DEPs that our research indicates can compromise investor protection,” Byberg said.
“We encourage authorities to gather data from firms and registrants to continue to measure the impact of DEPs on investor behaviours and outcomes,” she added.
The OSC also encourages registrants and firms that operate digital trading platforms to conduct their own research to identify the effects of DEPs on the behaviour and outcomes of users.
