The Ontario Securities Commission (OSC) today released a new report that studied the impact of gamification on investors. Along with this research, the OSC launched a new trading simulation tool for investors to test how online gamification tactics can influence their investing behaviour.
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 tool, GetSmarterAboutTrading.ca provides people 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.
“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,” said Leslie Byberg, Executive Vice President, Strategic Regulation at the OSC. “The research we published today, 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.”
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.
Gamification Revisited: New Experimental Findings in Retail Investing 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.
The OSC’s research into gamification is an important example of taking evidence-informed approaches to securities regulation. 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. This could include updates to regulations and guidance for digital trading platforms and potentially limiting problematic digital engagement practices that research indicates can compromise investor protection.
October marks Investor Education Month in Canada, and World Investor Week,
a global initiative of the International Organization of Securities Commissions, takes place October 7-13. Today’s launch is part of OSC efforts to raise awareness about the importance of investor education and protection.
For more information about investing, investor protection and behavioural science, visit GetSmarterAboutMoney.ca and sign up for the OSC’s popular e-newsletter, Investor News
The mandate of the OSC is to provide protection to investors from unfair, improper or fraudulent practices, to foster fair, efficient and competitive capital markets and confidence in the capital markets, to foster capital formation, and to contribute to the stability of the financial system and the reduction of systemic risk. Investors are urged to check the registration of any persons or company offering an investment opportunity and to review the OSC investor materials available at http://www.osc.ca.
