Stock market gamification is in your vocabulary if you follow TikTokInvestors on TikTok or read the WallStreetBets Reddit. It’s a nail-biting trend for more conservative investors, and begs the question of whether this “gaming” will do more harm than good not only to the market itself, but to regular people who are risking their hard-earned money on stock investments.
So what should we know about this new trend? And can we anticipate the bottom to fall out?
Stock Market Gamification: What You Should Know
Despite it getting more traction in recent years, “stock market gamification” is nothing new. In fact, the first signs of its popularity came all the way back in 2018, when amateur investors suggested that newbies play stock market games to improve their trading skills.
But thanks to the pandemic, the one-time stimulus check payment of $1200, and the promise of an additional stimulus payment that doesn’t go very far regardless of whether it’s a $600 or $2,000 payment, gamification was ripe for an explosion.
And explode, it did.
Robinhood was the first sign that gamification was the wave of the future. And according to McGill Business Review, these newbie investors were sending the stock market for a wild ride…and not in a good way.
“With a notoriously bullish and amateur client base, the buyers profit from these risky and ignorant bets. While the practice is not illegal, there are stringent policies in place to protect the consumers’ interests, specifically with non-direct order flow,” they write.
“But concerns about Robinhood’s opaque revenue model pale in comparison to effects of the erratic behavior of its self-proclaimed day traders. With half of its users composed of first-time investors, the Robinhood cohort is characterized by bullish attitudes and risky investments that fuel bizarre market trends.”
And that’s what makes stock market gamification so scary, in the long run. The adrenaline rush of watching young adults — TikTok’s target audience — play with the stock market using house down payments is an interesting experiment in the short-term, but could have devastating long-term effects.
Unsurprisingly, Financial Times reports that stock market gamification can leave investors out in the cold, in the long run.
“Chief among them is the so-called rollover risk, when the ETF has to sell expiring oil contracts and buy the next month’s,” they write. “This is a recipe for disaster when it comes to commodity-linked ETFs such as USO, which behave differently to stock market ETFs.”
So while it may be fun to watch stock market gamification on social media — it’s certainly good for a laugh — it’s not a wise idea in the long run.