Robinhood may be in trouble as SEC steps up efforts against trading gamification

Karthik Subramanian

The Securities and Exchange Commission (SEC) in the US has said that it would be looking more deeply into efforts at ‘gamification’ of stock and another trading by certain trade platforms as a means of attracting new users and making existing users trade more.

This could have a direct impact on the way Robinhood does business as its critics have been accusing it of trying to gamify trading on its platform without educating the traders about the risks that are involved with trading. One of the important tools that the trading platforms give is projections on how much a trader can make based on certain conditions. But these are based on best-case scenarios which are likely to mislead gullible traders into truly believing that they would be able to get a lot of success through their methods.

“While these new technologies can bring us greater access and product choice, they also raise questions as to whether we as investors are appropriately protected when we trade and get financial advice,” SEC Chair Gary Gensler said in a statement. “… In many cases, these features may encourage investors to trade more often, invest in different products, or change their investment strategy.”

Truth be told, it is not only Robinhood that has adopted such practices but we have seen many trading platforms, stock, and FX, trying out gamification as they believe that this would make trading more attractive for users. It is probably time to realize that the ‘real’ traders do not need trading to be gamified to make it interesting or challenging as trading by itself, with patience and determination, has enough problems to solve for the traders. It is only new users and those who are interested to make a quick buck, more out of a gambling tendency than a trading mindset, who need gamification and other ways to make trading more interesting. But with the trading market getting crowded, unfortunately, many trading platforms have resorted to this gamification model to draw in such gullible users.

Despite such challenges to its business model which is focussed on retail traders, Robinhood has been doing well and its stock price continues to hold strong. Though it continues to make losses due to spending on marketing and sales, it is expected that the coming quarters will see it posting some strong numbers as it adds to its userbase and expands its product range.

 

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