The UK Financial Conduct Authority (FCA) has published a paper on trading apps and consumer behaviour.
Today, apps are the norm not the outlyer, but it was not too long ago trades were completed by phone, and then by accessing a website. As smartphones are ubiquitous and convenient, consumers have become comfortable with managing all aspects of their financial existence, including investments.
The “Occasional Paper ” Playing the market: a behavioural data analysis of digital engagement practices and investment outcomes explores digital engagement practices (DEPs) and outcomes.
DEPs include push notifications, rewards and other investor engagement which the paper says can lead to poorer investment outcomes.
The authors state:
“we find that both realised and unrealised returns are significantly worse among consumers participating on the high DEP apps. We also find that the incidence of what we term ‘large’ losses – more than 2% of pro rata net income – is 4.8 percentage points higher on the high DEP apps than low DEP apps, once demographics are accounted for.”
Users of these apps tend to be younger and male. They also tend to spend more time on these apps and trade more frequently. They are also more likely to be in “financial distress.”
However, the authors note that their results should not be misconstrued as indicating that high DEP apps cause the outcome.
“Individuals with existing financial distress and precarity may be more likely to use high DEP apps as compared to other apps. Use of high DEP apps might also be correlated with other attributes which worsen consumer outcomes, such as vulnerability or poor financial literacy. Moreover, the product offerings of high DEP apps differed to medium and low DEP apps; notably contract for difference (CFD) products and cryptoassets (which in our sample were only offered on high DEP apps) appear to play a substantial role in investment outcomes.”
If you are interested in reading more, the Occasional Paper is available here.
