David Varga, co-founder of Fintokei and Purple Trading, told Finance Magnates: "I believe 'gamification' can actually be beneficial if done with the right intentions." This was in response to the Italian securities regulator Consob comparing prop trading to "video games."
Trent Hoerr, CEO of BullRush, also added: "If done correctly, gamification can be beneficial for traders."
Varga highlighted the educational value of gamification, citing the Duolingo app as an example, explaining that modern prop firms adopting this approach are simply following broader societal trends.
Italy's regulator Consob first expressed interest in prop firms last month and issued a warning. According to the regulator, prop trading platforms "simulate an online trading activity, similar to a financial video game, with the aim of passing skill tests and obtaining profits."
The regulator further expressed concerns about deceptive practices and potential risks associated with these trading simulations, which is part of a broader European regulatory trend.
"Consob's recent warning comparing trading evaluations to video games was necessary and timely," said James Glyde, CEO of prop trading platform PipFarm. "The biggest risk to consumers with this model is bad behavior, which is exactly what the regulator is targeting in their warning."
The Gamification Controversy in Prop Trading
Trading should be a serious task, completely different from playing video games. However, from a regulatory perspective, there are indeed issues worth noting. Italian securities regulator Consob has issued a stern warning about the rise of retail prop trading firms, likening their activities to financial "video games."
Trent Hoerr, CEO of BullRush, stated, "Most industries, especially the education industry, are looking for ways to gamify platforms to help improve the learning experience."
Consob expressed concerns about deceptive practices and potential financial risks associated with these trading simulations, which is part of a broader European regulatory trend.
Varga acknowledged the potential risks highlighted by regulators but emphasized the broader societal trend towards gamification.
Varga continued: "Let's not forget that one of the original purposes of modern prop trading or evaluation companies was to help traders level up, hone their skills, improve their discipline, and make them more consistent. Both parties benefit from these improvements."
Varga said: "I think this aspect of the industry has been somewhat overshadowed by all the flashy marketing 'video game-like' hype, but it's actually something that should be supported more, and I'm glad there are still some companies, including ours, with good intentions about this, so I can understand the 'video game' label to some extent, but fundamentally, I don't really agree with it."
Concerns About the Growth of Prop Trading
Consob is not the first institution to issue warnings about prop firms. Similar concerns have resonated among financial market regulators across Europe, with Belgium's FSMA and Spain's CNMV already issuing similar warnings, reflecting unease across the continent about the rapid growth of prop trading schemes.
The FSMA has already warned the public about the dangers of prop trading firms, which engage in trading financial products such as stocks, bonds, commodities, and cryptocurrencies, and often take advantage of consumers' financial ignorance.
Hoerr added, "Gamifying trading, such as hosting trading competitions or challenges where users earn XP, badges, and certificates based on their performance, can increase user engagement and knowledge. Overall, I believe gamification is a net positive for the trading community."
Meanwhile, other top regulators have also taken an interest in prop trading. As Finance Magnates exclusively reported earlier, the Czech National Bank stated that some prop firms might fall under the MiFID regulatory framework, depending on their business model.
While certain activities may require compliance with MiFID, others may be exempt, and suspected fraudulent behavior would fall under criminal law. The European Securities and Markets Authority (ESMA) has also started discussing the regulatory framework for prop firms, showing efforts to regulate this industry. Recently, ESMA conducted a preliminary review of these firms but did not confirm any regulatory initiatives.
ESMA Discusses Prop Trading Regulation
Despite warnings and regulatory uncertainties, many forex and CFD brokers are entering the prop trading space by offering these services. Trade.com is one of the recent brokers to launch prop trading services, branded as Trade.com Challenges. This new service is managed by Tplus Technologies Limited, a Cyprus-registered company.
Roei Gavish, CEO of the TRADE.com Group, emphasized that compliance with financial regulations is a key aspect of TRADE.com's strategy, especially when developing innovative trading products.
Gavish stated, "To ensure everything aligns with regulatory standards in Europe, the US, and any other markets we operate in, we're working on establishing a virtual link between funded trading and the actual trading experience."
Currently, prop trading firms must comply with consumer protection, data protection, and international sanctions laws. While many companies are registered in the US, UK, UAE, and Saint Vincent and the Grenadines, there are also many registered within the EU.
They attract individuals to engage in risky investments without putting in their own funds. Moreover, consumers are required to participate in expensive and difficult courses, which primarily generate revenue for the companies. Many end up paying for multiple courses without ever getting a real trading opportunity.
Glyde added: "This industry is full of new drama every week, with platform issues, liquidity problems, rule changes, and payment refusals happening daily. It's encouraging that they haven't found issues with the business model itself, but with the behavior of some operators, which is a well-known systemic problem."
The Potential and Risks of Gamification
Stathis Xenos, an entrepreneur with fintech, prop trading, and social and copy trading expertise, has been exploring the gamification of trading and investing for the past six years, even developing two minimum viable products (MVPs) aimed at enhancing the trading experience and improving users' trading skills.
Xenos said: "Gamification taps into traders' natural desire for competition, achievement, and social interaction. By treating the whole process as a game, it removes the boring parts of the user experience, making it more engaging. It's a powerful tool for businesses to connect with their customers, offering them an easy-to-use and educational experience."
He acknowledged a potential issue with trading gamification: the excitement generated by challenges, rewards, and goals might encourage excessive risk-taking. He believes this increased engagement could lead users to pursue risks they wouldn't normally consider.
Xenos stated, "While gamification offers a fresh and exciting approach to investing, it must be implemented cautiously and responsibly. It has enormous potential, but we need to remain vigilant about its effects. Personally, I believe gamification is shaping the future of trading."
Finance Magnates has contacted Consob for comment on the "video game" issue, but as of publication time, the regulator had not responded.
Reference：Prop Trading Industry Is Divided on “Gamification” amid Consob’s “Video Game” Remark
