A recent investigation by the UK’s Financial Conduct Authority (FCA) has raised red flags about how certain features in trading apps like push notifications and prize draws may be nudging users into riskier investment decisions.
In a comprehensive review titled “Trading apps: high-level observations,” the FCA assessed 12 investment platforms offering app-based trading services. The regulator’s findings are particularly relevant for both new and established brokers planning to develop or enhance their app offerings.
Digital Engagement May Be Fueling Reckless Trading
The FCA’s concern centers around digital engagement practices (DEPs), which include app features like real-time alerts, in-app rewards, and gamified experiences. A study involving more than 9,000 app users found that these digital elements are linked to increased trading activity often at higher levels of risk.
The study showed that users receiving push notifications were 11% more likely to execute trades, while prize draw features correlated with a 12% uptick. What’s more troubling is that these features also contributed to a 6–8% rise in high-risk trading behavior.
The findings suggest that while these features may boost engagement, they could also encourage impulsive decision-making among investors particularly those with less financial literacy or experience.
Mixed Performance Among Firms Reviewed
The FCA’s review looked at the business models, services, and consumer protection measures of the firms under scrutiny. One of the critical issues identified was the lack of clarity among some firms regarding their roles as either investment product manufacturers or simply distribution platforms. The FCA emphasizes that companies must fully understand and adhere to the responsibilities of whichever role they occupy.
Another concern was pricing. Many platforms earn money through fees, subscriptions, and interest on user cash balances. However, the FCA questioned whether these pricing models always represent fair value for consumers, urging firms to reevaluate their fee structures accordingly.
Weaknesses in Risk Communication
Although most companies acknowledged the need for responsible digital engagement, many still fall short when it comes to educating users about the risks associated with complex financial products. Some apps are not doing enough to verify that users understand what they’re investing in, particularly when it comes to high-risk assets like leveraged products or volatile stocks.
This lack of consumer understanding, combined with persuasive app features, may leave retail investors vulnerable to losses they don’t fully comprehend.
A Closer Look at Behavior and Outcomes
To complement its multi-firm review, the FCA also released a separate research paper titled “Playing the market: a behavioural data analysis of digital engagement practices and investment outcomes.” This study analyzed the connection between app design and investor behavior, offering data-driven insights into how DEPs affect trading patterns.
One of the key takeaways is that trading apps using more digital engagement techniques tend to attract younger, less affluent users. These individuals often trade more frequently and, according to the data, tend to experience worse investment outcomes.
Although the research did not establish a direct cause-and-effect relationship between DEPs and financial losses, it suggests that these app features could be contributing to a problematic pattern: higher trading frequency without a corresponding improvement in returns.
Final Thoughts
The FCA’s findings serve as a strong reminder for trading app developers to balance innovation with responsibility. Digital features that drive engagement should not come at the expense of investor protection. As the regulator continues to monitor this space, app-based brokers may need to rethink how they design and market their platforms especially if they want to remain compliant and trustworthy in the eyes of the public.
