SPEAKERS CORNER Is trading gamification ruining trading? Trading has been around since the 1800’s. It has undergone many transformations over its long history, but over the last decade we have seen the most dramatic change: trading gamification.
On Monday, October 19th, 1987, the famous Black Monday Stock Market Crash happened. If you had to guess, what do you think was to blame for the crash…… You guessed it, computerized trading.
This dynamic shift begs the question, is trading gamification ruining trading? The short answer is: YES. 100%
Due to large banks, brokers, and financial institutions having access to digital trading platforms they were able to place automated orders in the market. Between automatic limit and stop orders a rapid domino effect occurred which caused a 22% drop in the stock market in a single day.
For a long-time trading was geared only for The Elites. The Wealthy. The people with financial means. Trading gamification has flipped that on its head though. Through gamification, trading has become much more accessible to a broader audience.
So, what does it mean to be gamified? As outlined by Merriam-Webster dictionary, gamification simply means: the process of adding game-like elements to something (such as a task) so as to encourage participation. So, how did we get to the age of trading gamification? Well, there are three main drivers: digital trading platforms, social media, and crypto currencies
The Rise of Digital Trading Platforms Back in the days of Jesse Livermore traders had to walk down to their broker where stock prices were sent via telegraph, read off a ticker tape, and then written on a chalkboard. Traders would then read the price and place trades with their broker. Then you could ‘broker via phone’ Fast forward to the 1980’s and the first signs of trading gamification start to appear. Electronic trading is introduced and started to take shape. When the New York Stock Exchange introduced the SuperDOT computer in 1984 traders realized that the old ticker tape written on a chalkboard was outdated. Electronic Trading was the wave of the future. Financial information and orders were able to travel at the speed of light, making for a much more gamified experience. At the time computers and digital trading platforms were only available to institutional traders. The small retail traders had to phone in their orders to a broker, who would then use a digital trading platform to place the trade. GAME CHANGERS Issue #50
While institutions lost a large portion of their money, many retail traders were completely wiped out. Unfortunately for retail traders, they did not have the resources to take part in electronic trading. They were forced to phone their broker to place the order on their behalf. These brokers worked for large institutions that were trading their own portfolio, along with managing the finances for the Elites, the Wealthy, the people with financial means. So, as you can imagine, the retail investor was put to the back of the line and brokers simply just ignored them. Unfortunately for them this meant they were not able to add to their positions and/or close their positions, which resulted in catastrophic losses. This single event exposed something that hadn’t been thought of up to this point: Institutions and the wealthy had an unfair advantage over the retail trader. As a counter-act, we saw the rise of digital trading platforms to the retail investor. The NASDAQ built the first ever Small Order Execution System (SOES), which was designed specifically for the retail trader to enter trades electronically vs. having to phone the order into their broker. This set off a chain reaction in retail trading, and in the late 1990’s with the rise of the personal computer and internet, digital trading exploded in popularity. With on-screen prices moving up and down in flashy colors, and charting graphs being printed automatically, trading began to feel like a game. Similar to the video game Pac-Man people were drawn into trading like never before due to the excitement, the thrill, and the overall fun they had while trading.