In 2021, trading platform Robinhood had 22.5 million registered users. Many of these users were drawn in by the seemingly easy trading system that is offered by the platform. However, Robinhood and other trading apps have recently come under scrutiny for bringing a gaming aspect into trading.
Krisztian Gatonyi, senior analyst at BrokerChooser, shares his views on the gamification of investing and why this could be a hidden danger.
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“The slogan for Robinhood should be changed to: Gambling for Everyone”!
Krisztian Gatonyi feels users should be warned about the game-like features that are offered by the Robinhood mobile app. Robinhood is appealing to beginner investors because it provides an easy-to-use mobile app. This allows users to make trades on the go from their smartphones, which can seem a lot easier than sitting down at a desktop.
According to Gatonyi, “gamification starts already if you use smartphones to invest or trade.” By ‘gamification’, Gatonyi means the application of game-like features into traditional investing. Robinhood app users treat trading like it’s just another game on their phones. This is made possible through the app’s visually appealing features and the ability to easily place trades.
It is this gaming mindset that could cause users to lose a lot of money. Gatonyi warns, “Game-like features can manipulate beginners to increase the number of their transactions, which is good for Robinhood’s Payment for Order Flow model. But not for users.”
Due to the nature of the app, Robinhood traders are prompted to increase the frequency of their trades and spend less time analysing the market. This leads to a lack of informed decisions.
According to Gatonyi, “The more frequently beginners trade, the more likely they end up losing money.” He also suggests that Robinhood should change its slogan to ‘Gambling for Everyone’.
The hidden danger of gambling on trading apps
Trading can bring excellent profits to some traders. However, making money through trading involves a high level of skill and time spent on analysis. However, an increasing number of beginner traders are placing trades quickly and chasing big profits from their mobile phones.
Gatonyi explains, “The incentives in Robinhood’s app get young customers impatient and makes them believe investing is about pressing the ‘buy’ button on mobile phones. This process involves making fewer quality decisions.” The analyst goes on to warn that this can quickly become addictive – and dangerous.
In 2020, a 20-year-old student committed suicide after losing $730,000 (£558,000) using his Robinhood account. In fact, thousands of people lose large amounts of money every year by gambling on quick trades.
How to avoid the gambling temptation
If you are new to trading, the thought of earning money quickly can easily tempt you into gambling. However, profitable traders take time to make well-informed decisions and trade at much lower frequencies to ensure success.
While gambling is very risky, it is possible to make successful trades on the Robinhood app. Here are some smart investing tips to help you avoid the gambling temptation.
Don’t trade from your phone
Gatonyi says that he does not make investments from his mobile phone. This is because investing on the go means that you can get easily distracted and make mistakes. He says, “I think that mobile phones are good for checking financial data but not for investing or trading.”
Instead, users should place their trades from a computer or laptop at a time when they aren’t distracted by anything else. Making good trades involves market analysis, which is difficult to do using trading apps on a tiny screen.
Avoid becoming greedy
The key to profitable trading is knowing when to stop. For every trade, there is a risk that you will lose money. Therefore, it is wise to end your trading session after a few successful trades to avoid placing one trade that loses everything!
Manage your risk
Risk management is one of the most important aspects of trading and investing. It is the process of minimising your losses by making a plan for unsuccessful trades.
The main processes of risk management are knowing how much of your capital to risk on a trade and understanding when to exit a trade. Good risk management is a great way to reduce your chances of losing large amounts of money when you trade.
The post The hidden danger of trading apps: how investing can quickly become gambling! appeared first on The Motley Fool UK.
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