SEC steps up research into brokers’ ‘gamification’ of trades, Chair Gary Gensler says

227

Gensler said he wants to gather investors’ thoughts on game-like features in financial platforms, behavioral prompts to trade more often and “other digital elements or features designed to engage with retail investors on digital platforms.”

I think he’s talking about the Robinhood Confetti

128

u/OK6502 18d ago

Yeah. RH takes cues from casino designs to encourage people and keep them engaged. If people want to gamble their money it's their right but I think these platforms should be subject to similar scrutiny.

59

u/badtrader 18d ago edited 18d ago

Anyone whose a smart gambler should be using the markets as their game of choice. It has the best odds, probably close as it gets to 50/50 only thing you’re losing is commission.

Casinos, lottery, etc are all complete rip offs

11

u/Binkusu 18d ago

Went to Vegas for my first time at a casino.

I don't get the appeal. It's boring.

14

u/christmasjams 18d ago

Get on a heater on the craps table. You'll see excitement. Poker is a grinder's game. Blackjack is ok if you can deal with the douchebags that think they own the table and try to tell you how to play your game.

5

u/ResultAwkward1654 17d ago

Yes! Came to say craps is the shit with hot hands rolling! Once showed up with $80 and lasted 4 hours going up and down, drinking for free, and having a blast. Left the table with $100. It was a rollercoaster but well worth my initial $80 investment. Pretty much drank for free, tipped for free, and made out with $20. Then it was blackout after that :/ ….

5

u/Omega_Haxors 18d ago edited 18d ago

A funny story about the first and last time I ever went to a casino.

Came in with 50 ready to lose it all and have some fun. Put it in the machine, pulled the lever 2 times and that was it. The machine said 1$ in big letters, but that was 1$ per credit, and 25 credits per spin. Yeah, no. Not playing that.

I had more fun walking by all the "Konami" slot machines than I had actually playing that machine.

2

u/Binkusu 18d ago

Arcades and the way for me.. More mind stimulating

12

u/GloriousSushi 18d ago

Except its easy to lose 12k like I did last week vs a casino where you lose maybe few hundred on a given night. Not many people I know can say they lose 20-40k in the casino. It's very easy to transfer 20k into the broker just to lose half of it while most people wouldn't dare be able to lose that much gambling in casino. I would never recommend the market for anybody who has bad gambling addictions.

21

u/frenchiefanatique 18d ago

12k just last week? sounds like you were playing with options.

8

u/GloriousSushi 18d ago

Unrealized losses lets hope 🤞. I was finally hoping jpowell would talk about raising interest rates like many other countries have done and had puts ready.. Yet here we are . With stock market running higher than ever.

6

u/frenchiefanatique 18d ago

It'll definitely come, imo it's inevitable but damn I hope your options expire in at least a few months because it could take that long

9

u/Jo-Sef 18d ago

Back when online poker was legal in my area I turned $20 into just under $2000 in about 1 year and finished paying off my student loans.

Poker is of course a game of chance but also a game of skill and probability. You could argue the same for the market, but the market has so many variables compared to poker.

I want my online poker back.

6

u/badluckbrians 18d ago

$2000

finished paying off my student loans

when online poker was legal

What blessed non-US country is this?

9

u/Jo-Sef 18d ago

Lol they were my community college loans and were already more than half paid off.

Don't worry I've since accrued much much more student debt.

1

u/pifhluk 18d ago

Poker though is a fair game, no one at the table gets to see your cards or change the next card like the stock market.

3

u/usriusclark 18d ago

Easy to lose 20-40k?

When I was creating my accounts, I read up on margins and options. I’m a novice, so cash only is the account I set up.

There’s plenty of free information explaining how the stock market works and a good rule in life is, “if you don’t understand it, don’t mess with it.” If you or anyone else doesn’t do some basic research before opening an account, that’s on you/them. Open a credit card without reading the terms, that’s on you. Take out a loan without reading the terms, that’s on you.

6

u/CommercialFindingNo9 18d ago edited 18d ago

Except its easy to lose 12k like I did last week vs a casino where you lose maybe few hundred on a given night. Not many people I know can say they lose 20-40k in the casino. It's very easy to transfer 20k into the broker just to lose half of it while most people wouldn't dare be able to lose that much gambling in casino. I would never recommend the market for anybody who has bad gambling addictions.

That actually sounds pretty impressive and hard to do. I like to fuck around with a few bucks on meme stocks, but my normal retirement investments are in really sleepy things and they're up like 50% for the year. I think even the 'fire and forget' index funds like VOO, VTI and SPY are up 30%

I mean just think about it. When both the Russell small cap growth (IWF) and VTI are both up... both ends of the market are going up. The big guys and the small guys. You really need to search for the below average stocks that are only getting you 10%

5

u/christmasjams 18d ago

SPY YTD: 21.22%, IWF is the Russell large cap growth fund (aka R1000, not 2000). IWO (Russell 2000 growth, aka SCG) is up 3.80% YTD.

7

u/CommercialFindingNo9 18d ago edited 18d ago

Like I said, if someone lost money this year that’s actually pretty impressive

For context I think the Russell 3000 is up like 35 percent for the year, and if SCG is up “only” 3.8 I guess that sort of helps identify where some loser stocks are because Russell’s micro cap is also up

So I guess there’s a conceivable world where someone is doing a lot of “research” and picking small but not that small cap stocks, which end up being loser picks. Obviously not companies that would be a household name or anything a normal person would think about. Its actually sort of impressive for someone to find the Goldilock zone of suckage

2

u/christmasjams 18d ago

Well, if large (1000) is up ~20%, and small (2000) is up ~ 10%, it's a mathematical impossibility that the sum of the parts (3000) is up more. IWV YTD: +15.06%.

Investors heavy in china and EM (and other local markets) are not as fortunate. I have a sleeve that took a shit since May, but that's the nature of a diversified portfolio. One part is bound to be doing worse than the other.

If someone is whole hogging on individual stocks, that could be another exposure. I personally don't make too many individual bets except here or there, so most of what I'm doing is broad market based. Your point remains: it will take a special circumstance to be down this year since it he most basic pieces of the market are up in aggregate.

0

u/GloriousSushi 18d ago

Well it's unrealized losses ATM on an earnings play with put/calls options involved. Overall I'm up this year but just wanted to point out how easy it is for someone on Robinhood/webull or any other small broker to lose money. And many people are dwelling into trading instead of investing. I have my investment portfolio but I also tinker with trading. And Ive improved drastically over last 8 months but It makes me realize how bad it to actually gamble away your hard earned money in the market trying to obtain a huge return on a short term play.

2

u/INCEL_ANDY 18d ago

lol. maybe you are unfamiliar with Robinhood. they allow trading on margin and derivatives trading. You certainly can lose more than just commission and principal. Even then, the overly speculative trading that is of concern probably has worse odds than games like blackjack in most cases.

0

u/A_Proud_NIMBY 18d ago

The market is too big to fail, backstopped by the FED. 100% risk free if in a major index fund

0

u/beekeeper1981 18d ago

Gambling like investing is not close to 50/50.

2

u/capnwally14 18d ago

Confetti is on your first trade. This feels a bit silly?

1

u/OK6502 18d ago

A tad

5

u/DOugdimmadab1337 18d ago

It makes no difference though. People who were gonna throw their money in the dumpster on SPY puts weren't gonna be entysed by it anyway. They treat the market like a game, not the companies who provide the service.

3

u/Slapbox 18d ago

Enticed*

5

u/okletstrythisagain 18d ago

I believe RH gets a huge premium compared to other brokers when selling their trades prior to execution, probably because it’s dumber money than most. Am on mobile but there was a nytimes article a while back that explains the aftermarket and RHs unusually high pricing. The whole business model might be intentionally profiting by encouraging bad decisions.

2

u/greenbuggy 18d ago

might be intentionally profiting by encouraging bad decisions.

Whether the trade they're engaging in is a good or bad decision, RH's business model is making Citadel even richer by reporting aggregate data on what RH users are trading so Citadel can try and front-run those trades

4

u/okletstrythisagain 18d ago

Sure RH amasses valuable useful data but what I’m saying is they are profiting not by directly front running the trades, but rather selling execution of their trades to third parties who then front run. RH’s trade inventory is priced at a premium because it is easier to front run against. I’m inferring a lot from an article I read a long time ago and welcome corrections, but I think that’s the business model. While likely legal, perhaps it shouldn’t be. Tricking people into losing money isn’t adding value to anything but an arbitrage opportunity. If that is their business model they should be regulated like casinos and online gambling.

0

u/ReRun707 18d ago

Well of course… the house always wins.

1

u/icebeat 18d ago

SPY is not a company plus the probability of make money in the market is far far far bigger than win the lotto.

0

u/[deleted] 18d ago

[deleted]

10

u/KyivComrade 18d ago

And yet Casinos (both physically and ditigal) spend millions to make sure they trigger all the right spots to make you spend. The whales are already caught in the net, they want the small fish as well...they want Joe Random to splurge $200 on Yolo calls to get that confetti raining. Get them addicted...

4

u/rjc0915 18d ago

Next thing you know options will be by 10 or even 1 as opposed to 100 so they can get more people in the doors

1

u/[deleted] 18d ago

God, I hope this gets someone to crack down on this shit in videogames as well

55

u/StatementOrIsIt 18d ago

It all stems from the underlying problem of broker dealers and retail investors having different incentives. Broker dealers chase volume (they get paid for directing volume for Payment For Order Flow reasons & fees), while retail investors chase profits.

This not only means gamification with confetti and good-looking graphs, but also dangerous levels of margin and more complex financial instruments available for ostensibly anyone.

A good example is options trading. If you want to trade options, you only need to open a trading account on a platform that offers it. While previously a trader needed to read up and study for an exam to even get access to options trading. Trading platforms don't care, because there will be users that want to risk it all on margin to make a fortune and that generated volume is money in the platform's pockets. Even now on options subs you see misinformed or uneducated people among the crowd purchasing these complex financial instruments.

Trading platforms should be forced to align their incentives with their user base just so these conflicts of interest wouldn't arise. Broker dealers should want their traders to make money and savvy investments. The SEC shouldn't just blame it all on gamification, it's this simple conflict of interest that makes broker dealers chase more ways to increase profits, but, sure, blame gamification, it will placate the masses.

It's my belief that this would be a small step forward to make markets more competitive and fair, which would only help achieve its goals of price discovery and resource allocation.

18

u/optiongeek 18d ago

My brokerage takes option education very seriously. You need to have years of experience and pass a rigorous test before you can access the most aggressive strategies. RH is cancer.

1

u/StatementOrIsIt 18d ago

Which one is that?

7

u/optiongeek 18d ago

Schwab/TDA/ThinkOrSwim

6

u/[deleted] 18d ago edited 18d ago

[deleted]

2

u/StatementOrIsIt 18d ago

It's good that at least some brokerages require some sort of user education.

1

u/hollywoodhank 18d ago

So does Schwab.

6

u/theaashes 18d ago

Good point. If this is about RH, then Citadel needs to be involved as a recipient for POF. But politically this might not be feasible as Citadel is a contributor to political parties. The SEC can do it home work on how these companies work in the grey areas and flex it's muscles on what it COULD do, but passing a rule/ law is not going to happen.

19

u/StatementOrIsIt 18d ago

E-Trade, Ally Financial, Webull, Tradestation, The Vanguard Group, Charles Schwab Corporation, and TD Ameritrade are broker-dealers that also accept Payment for order flow. And there are also other market makers like Goldman and Virtu alongside Citadel that gobble up bigger parts of retail order flow. It would be a shame to only blame the two most known perpetrators.

2

u/growtilltall757 18d ago

What are your thoughts on SECs Reg BI? Does it not go far enough?

2

u/StatementOrIsIt 18d ago

Reg BI? Sorry, not familiar with the acronym.

18

u/I_Love_To_Poop420 18d ago

This is essentially smoke and mirrors. Is it important to address this issue? Yes, but after about 15 other, much more desired and needed changes that retail traders have been screaming to get handled. Dark pool abuse, naked shorting, payment for order flow, Citadel and other firms getting to be a broker, market maker and investor…such a huge conflict of interest. Citadel connect, media manipulation, spoofing, ladder attacks and being able to borrow to cover FTD’s…not to mention being given an unnecessarily excessive amount of time to cover FTD’s. All of these issues are far and away more dire than addressing “loot boxes” of trading platforms.

2

u/RAMB0NER 17d ago

Tell me you get all of your "information" from r/Superstonk...

10

u/belovedkid 18d ago

FINRA out here worried about what advisors like on linked in or share on Facebook while Robinhood throws a party for people betting their entire cash savings on GME options lmao.

14

u/Adult_Reasoning 18d ago

Talk about a ridiculous thing to investigate.

"Should game-like features and result-prediction considered investment advice? It bad that people change their investment strategy and doing so more frequently!"

Dafaq? SEC trying to stir shit up where there isn't any. The truth is they're trying to halt a culture change when it comes to managing personal investments. Robinhood and othet similar tools are taking power (and money) away from traditional financial.firms and conventional means of investing.

SEC should come out and just say what they really mean-- "we don't like this culture shift."

And if they REALLY want to actually investigate something meaningful that SHOULD be considered questionable practice-- and it was mentioned in the article-- it is the selling of order flow. That's the real stinker here. Game-like features only attract younger people to the investing game. But order flow is an actual weapon for big players. Investigate that, SEC.

22

u/testaccount62 18d ago

Lol who do you think owns/finances RH? Citadel is a “traditional financial firm”. They’re playing you

6

u/theaashes 18d ago

Yes. I agree with this. Citadel has to be investigated and POF has to be banned. That's "free money" for the market makers, and ruining retail trading for the common man. Nothing is free, and RH is a liar.

-1

u/udsnyder08 18d ago

THANK YOU!!! I agree 100%, the SEC is just looking around for problems that don’t exist so they can avoid investigations that would actually be good for investors.

-1

u/DonkStonx 18d ago

But then who would give them jobs later?

2

u/Lumpy-Dingo-947 18d ago

Sounds like training your investment ad algorithm to show people only the stuff that makes them want to trade will be considered financial advice despite what the little text in the EULA says.

I doubt we’ll get anything stronger than the equivalent of a surgeon general’s tobacco warning. Something like always on banner that says

THIS SELECTION OF INVESTMENTS WAS NOT GENERATED WITH REGARD RISK IT HAS BEEN GENERATED BASED ON YOU INTERESTS

And our brain will make it invisible after the first minute.

3

u/vcz001 18d ago

Wait am I seeing ads for investment based on what they think I want to buy ?

2

u/Lumpy-Dingo-947 18d ago edited 18d ago

Not only do you get the benefit of our ad machine’s financial advice, we also financially advise your friend to be invited by you to our ad machine and you both win a free random stock, and there’s a chance it’s worth more than a dollar!

^{^{^{^all}}} ^{^{^{^social}}} ^{^{^{^interactions}}} ^{^{^{^bear}}} ^{^{^{^some}}} ^{^{^{^risk}}} ^{^{^{^past}}} ^{^{^{^friendship}}} ^{^{^{^does}}} ^{^{^{^not}}} ^{^{^{^predict}}} ^{^{^{^future}}} ^{^{^{^BBQ}}} ^{^{^{^invites}}}

3

u/Flame-747 18d ago

Traders who are making money are not complaining. The SEC needs to focus on serious issues like dark pools, and PFOF.

The days I make money I’m happy, the days I lose money is ok, I’m not suddenly going to blame some app for my mistake

3

u/INCEL_ANDY 18d ago

Lol what a joke. PFOF is a perfectly legit business model that exists to lower barriers for those that want to invest. Anyone actively trading on a platform that uses PFOF for low commission shouldn't be trading in the first place. It quite literally only takes 5 minutes to google better alternatives.

I don't even know why your happiness or the feelings of the traders that are making money is important to the underlying issue.

-6

u/[deleted] 18d ago

[removed]

3

u/[deleted] 18d ago

[removed]

3

u/[deleted] 18d ago edited 18d ago

[deleted]

1

u/[deleted] 18d ago

[removed]

-1

u/[deleted] 18d ago

[removed]

1

u/[deleted] 18d ago

[removed]

1

u/AutoModerator 18d ago

Rule VI:

All comments must enagage with economic content of the article and must not merely react to the headline. This post was removed automatically due to its length. If you belive that your post complies with Rule VI please send a message to mod mail.

I am a bot, and this action was performed automatically. Please contact the moderators of this subreddit if you have any questions or concerns.

1

u/[deleted] 18d ago

[removed]

1

u/AutoModerator 18d ago

Rule VI:

All comments must enagage with economic content of the article and must not merely react to the headline. This post was removed automatically due to its length. If you belive that your post complies with Rule VI please send a message to mod mail.

I am a bot, and this action was performed automatically. Please contact the moderators of this subreddit if you have any questions or concerns.

1

u/[deleted] 18d ago

[removed]

1

u/AutoModerator 18d ago

Rule VI:

This post was removed automatically due to its length. All comments must enagage with economic content of the article and must not merely react to the headline. If you belive that your post complies with Rule VI please send a message to mod mail.

I am a bot, and this action was performed automatically. Please contact the moderators of this subreddit if you have any questions or concerns.

1

u/[deleted] 18d ago

[removed]

1

u/AutoModerator 18d ago

Rule VI:

All comments must enagage with economic content of the article and must not merely react to the headline. This post was removed automatically due to its length. If you belive that your post complies with Rule VI please send a message to mod mail.

I am a bot, and this action was performed automatically. Please contact the moderators of this subreddit if you have any questions or concerns.

1

u/[deleted] 18d ago

[removed]

1

u/AutoModerator 18d ago

Rule VI:

This post was removed automatically due to its length. All comments must enagage with economic content of the article and must not merely react to the headline. If you belive that your post complies with Rule VI please send a message to mod mail.

I am a bot, and this action was performed automatically. Please contact the moderators of this subreddit if you have any questions or concerns.

1

u/[deleted] 18d ago

[removed]

1

u/AutoModerator 18d ago

Rule VI:

This post was removed automatically due to its length. All comments must enagage with economic content of the article and must not merely react to the headline. If you belive that your post complies with Rule VI please send a message to mod mail.

I am a bot, and this action was performed automatically. Please contact the moderators of this subreddit if you have any questions or concerns.

1

u/[deleted] 18d ago

[removed]

1

u/AutoModerator 18d ago

Rule VI:

All comments must enagage with economic content of the article and must not merely react to the headline. This post was removed automatically due to its length. If you belive that your post complies with Rule VI please send a message to mod mail.

I am a bot, and this action was performed automatically. Please contact the moderators of this subreddit if you have any questions or concerns.

1

u/[deleted] 18d ago

[removed]

1

u/AutoModerator 18d ago

Rule VI:

All comments must enagage with economic content of the article and must not merely react to the headline. This post was removed automatically due to its length. If you belive that your post complies with Rule VI please send a message to mod mail.

I am a bot, and this action was performed automatically. Please contact the moderators of this subreddit if you have any questions or concerns.

1

u/[deleted] 18d ago

[removed]

1

u/AutoModerator 18d ago

Rule VI:

All comments must enagage with economic content of the article and must not merely react to the headline. This post was removed automatically due to its length. If you belive that your post complies with Rule VI please send a message to mod mail.

I am a bot, and this action was performed automatically. Please contact the moderators of this subreddit if you have any questions or concerns.

1

u/[deleted] 18d ago

[removed]

1

u/AutoModerator 18d ago

Rule VI:

All comments must enagage with economic content of the article and must not merely react to the headline. This post was removed automatically due to its length. If you belive that your post complies with Rule VI please send a message to mod mail.

I am a bot, and this action was performed automatically. Please contact the moderators of this subreddit if you have any questions or concerns.

1

u/[deleted] 18d ago

[removed]

1

u/AutoModerator 18d ago

Rule VI:

All comments must enagage with economic content of the article and must not merely react to the headline. This post was removed automatically due to its length. If you belive that your post complies with Rule VI please send a message to mod mail.

I am a bot, and this action was performed automatically. Please contact the moderators of this subreddit if you have any questions or concerns.

1

u/[deleted] 18d ago

[removed]

1

u/AutoModerator 18d ago

Rule VI:

This post was removed automatically due to its length. All comments must enagage with economic content of the article and must not merely react to the headline. If you belive that your post complies with Rule VI please send a message to mod mail.

I am a bot, and this action was performed automatically. Please contact the moderators of this subreddit if you have any questions or concerns.

1

u/[deleted] 18d ago

[removed]

1

u/AutoModerator 18d ago

Rule VI:

All comments must enagage with economic content of the article and must not merely react to the headline. This post was removed automatically due to its length. If you belive that your post complies with Rule VI please send a message to mod mail.

I am a bot, and this action was performed automatically. Please contact the moderators of this subreddit if you have any questions or concerns.

1

u/[deleted] 18d ago

[removed]

1

u/AutoModerator 18d ago

Rule VI:

All comments must enagage with economic content of the article and must not merely react to the headline. This post was removed automatically due to its length. If you belive that your post complies with Rule VI please send a message to mod mail.

I am a bot, and this action was performed automatically. Please contact the moderators of this subreddit if you have any questions or concerns.

1

u/Current_Degree_1294 18d ago

Gamification of billions of dollars. Yeah thats fine. But gamification of Wendy’s paycheck is not fine. Because rich invest and poor people gamble is the most bs thing ever. Investors are not irrational. Gamification exist without RH platform. SEC needs to be audited and their ties with several hedge funds.

1

u/[deleted] 18d ago

[removed]

1

u/AutoModerator 18d ago

Rule VI:

This post was removed automatically due to its length. All comments must enagage with economic content of the article and must not merely react to the headline. If you belive that your post complies with Rule VI please send a message to mod mail.

I am a bot, and this action was performed automatically. Please contact the moderators of this subreddit if you have any questions or concerns.

1

u/[deleted] 18d ago

[removed]

1

u/AutoModerator 18d ago

Rule VI:

This post was removed automatically due to its length. All comments must enagage with economic content of the article and must not merely react to the headline. If you belive that your post complies with Rule VI please send a message to mod mail.

I am a bot, and this action was performed automatically. Please contact the moderators of this subreddit if you have any questions or concerns.

1

u/DesertAlpine 18d ago

I am repulsed by this guy. I try to look at the position over the person—Biden, Trump, Obama, Bush...no repulsion—but this guy. Man. I just want to rub his face in some snow.

1

u/[deleted] 18d ago

[removed]

1

u/AutoModerator 18d ago

Rule VI:

This post was removed automatically due to its length. All comments must enagage with economic content of the article and must not merely react to the headline. If you belive that your post complies with Rule VI please send a message to mod mail.

I am a bot, and this action was performed automatically. Please contact the moderators of this subreddit if you have any questions or concerns.

1

u/[deleted] 17d ago

[removed]

1

u/AutoModerator 17d ago

Rule VI:

This post was removed automatically due to its length. All comments must enagage with economic content of the article and must not merely react to the headline. If you belive that your post complies with Rule VI please send a message to mod mail.

I am a bot, and this action was performed automatically. Please contact the moderators of this subreddit if you have any questions or concerns.

0

u/AshingiiAshuaa 18d ago

So people who can vote, buy guns, join the military, get married, and sign legally-binding contracts aren't sophisticated enough to resist being manipulated by "game-like prompts" and "congratulatory messages". Should we raise the age of majority?