By Sharon Collard
The boom in online investing brings opportunities but also risks – including links between risky investing and gambling problems. The blurring of investing and gambling poses challenges for regulators and businesses that are responsible for protecting consumers from harm.
From a UK perspective, the rise in online investing – boosted by the pandemic – marks an important shift in a population that has stuck doggedly to cash savings even in the face of historically low interest rates. And it is encouraging to see younger adults getting involved in tech-enabled investing, attracted by easy-to-use interfaces and fee-free business models.
At the same time, new trends like meme investing exploit age-old human biases that can exacerbate risk, particularly in the volatile and uncertain times in which we live. People see high-risk activities like cryptocurrency trading (unregulated in the UK) as an exciting fast-track to easy wealth. Investors may conduct little or no research before they buy, instead making snap decisions based on what they hear from social media influencers and short-form trading tips on TikTok. They tend to over-state their own knowledge while also distrusting official sources of information and dismissing regulator’s risk warnings as old-fashioned and downright boring. And it goes without saying that their ‘capital is at risk’ with a good chance of losing most or all the money they invest and a low chance of making money even over the longer-term.
In addition, the academic literature highlights strong links between risky investing and gambling problems. Risky trading can be part of a broader repertoire of gambling activities and studies show links between higher rates of “problem gambling” and high-frequency trading in riskier products like derivatives. There is evidence of “addictive-like trading behaviour” – small early wins followed by loss chasing, where someone can end up losing control over the money they have invested. These risks have been exacerbated during the pandemic with people spending much more time at home where they may be isolated and bored. The national charity GamCare has reported a rise in the number of people asking for help with problems related to day trading on its online forums. The past few days have also seen the fallout from the collapse of Football Index, a gambling platform with an estimated 0.5 million users that marketed itself as a “stockmarket for footballers” – perhaps the most blatant example to date of the blurred line between gambling and investing.
This blurring raises many questions for regulators and businesses about how to protect individuals who may be at risk of significant harm through gambling and high-risk investing. There is also the difficult question of how to regulate an online space awash with unregulated financial advice and increasingly sophisticated investment frauds and scams. For gambling treatment and support professionals, it raises the question of whether high-risk investing should routinely be screened for, and treated as, a subset of gambling disorder. Altogether, this points to the need for better cross-sectoral regulation and collaboration in a world where boundaries are more blurred than ever.