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As soon as investing becomes a game, the risks quickly disappear

It starts with a free share, which you can ‘scratch open’ yourself on the screen of your own phone. Then you will see the digital confetti descending on your phone screen and you will receive an exuberant congratulations: you now own one share of company X. Now invite a friend and receive one more free share.

Was it ever more fun to start investing? The game-like methods of the American app Robinhood, from this example above, have shaken up the mobile investing market. They mainly attract a new generation of increasingly younger investors.

Still, it is possible to use these kinds of game elements gamification are not only fun, but also risky. One possible consequence is that the new investor will see trading on the stock exchange as an exciting game without serious consequences. Think of young people who challenge each other online to buy certain shares or play a stock market game together. Also consider the run on unregulated cryptocurrencies whose value keeps shooting in all directions, and the revived interest in risky leveraged products such as turbos. These are then marketed using aggressive marketing techniques from the online gaming and gambling industry.

“With gamification you have to think of inviting elements that really touch on games,” says Ruben Cox, visiting university lecturer in financial economics at Rotterdam’s Erasmus University and working for ING. Think of a storyline in an app in which you have a level can get further. Or badges that you ‘win’ by achievements , do or achieve something such as trading in certain markets or products. But also keeping a weekly ranking in a stock market game is really something that influences behavior. It challenges certain people to top that rankings, especially the somewhat younger target group. ”

Cox, who previously worked for the Netherlands Authority for the Financial Markets (AFM), investigated the trading behavior of private investors in the autumn of 2018. He concluded that about 7 percent displayed compulsive or addicted trading behavior. “They had trouble quitting. You can draw parallels with a gambling addiction. ”

Admittedly, it is not made very difficult for the starting investor nowadays to make a step to the stock exchange. A low investment, relatively low transaction costs, web forums full of tips and tricks and always an investment app at hand. In the meantime, the historically low savings interest means that saving costs you money, you can spend less money due to the corona restrictions and you also have plenty of free time. Add to this the ever-rising stock markets and a nearly perfect mix is ​​created that will also convince the last doubters.

Also read: You never invest without costs

This is evident from the latest figures. The number of Dutch people who invest increased by 160,000 to 1.6 million last year, the AFM reported last month. What is striking: slightly more than half of the newcomers are under 35 years old.

“Traditionally, the average Dutch investor is about 55 years old. This has dropped to around 50 due to the influx of young investors in particular, ”says Reg van Steen, who mapped the new group of investors at research agency Kantar. He points to a second trend. “More and more women are also joining. Their share has grown from 20 to 30 to 35 percent in this century. This is because young women are now more educated than young men and have become more financially autonomous as a result. ”

Although, according to Van Steen, we should not think that the whole of the Netherlands is investing in the meantime. The last real revival was in the summer of 1997, the so-called ‘camping boom’, in which investors en masse with their first mobile phone placed orders on the phone from their holiday address. Van Steen: “The Netherlands really is a savings country. Although you can see that change a bit. ”

The AFM investigation reveals something else: today’s home-garden-and-kitchen investors have self-confidence. They are less likely to describe themselves as cautious, and those who invest through an app are more likely to trade. “Investment apps can make sensible choices easy or difficult,” says an AFM spokesperson. “If these apps offer free transaction credit, it can tempt people to do a lot of transactions – even if their credit is already used up.” The AFM says it will monitor developments such as gamification and free investing “closely”.

Although the guiding technique of gamification can ultimately also work in the interest of the investor. This provides providers with a new set of options for informing customers about risks online or within apps in a playful way and thus providing better training, the regulator expects. This should lead to the application of filters within investment products to keep out clients who do not belong to the target group. By monitoring behavior, it would then be possible to intervene in a timely manner when a gamer finds reaching the next level more important than his or her financial well-being.

As soon as investing becomes a game, the risks quickly disappear
Source link As soon as investing becomes a game, the risks quickly disappear

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