[ad_1]
Retail Updates
Sign up for myFT Daily Digest to be the first to know about retail news.
What social networks have done to society, they are now doing to the markets.
Consider the similarities between the riot last January at the United States Capitol and the riots in the capital on trading platforms such as Robinhood, which goes public this week. Just as Washington has been stormed by Trump supporters who have organized themselves into online flash mobs, the new generation of high-speed trading platforms have allowed the retail ‘brothers’ to coalesce into what can only be described as a multiplayer pump-and-dump game. various “meme” actions and cryptocurrencies.
The bloodshed from the riots made it a much more serious event. But in both cases, those involved felt like they were somehow being manipulated or undermined by a system that was beyond their control. By leveraging digital networks to organize, they could retaliate in one way or another, whether that be by terrorizing members of Congress or making an offer to GameStop to harm certain hedge funds.
We understand the threat to democracy posed by platform technology. But less has been said about the dangers posed to our financial system when “likes” become “purchases”.
Some people, including the founders of Robinhood, argue that online brokerage ‘democratizes’ finance by allowing novice traders to make split-second bets on everything from stocks to complex derivatives, just as professionals do. . But this confuses the idea of voice with that of profit.
I would say high speed trading platforms designed to attract the most vulnerable newbie traders (the average age of 18 million users is 31 and the median account balance is $ 240) are just a new type. more nefarious surveillance capitalism.
First, consider the asymmetry of power. We have no idea of the real value of personal data sold by platform giants like Facebook or YouTube to advertisers as hidden charges for the so-called “free” services we enjoy online. Likewise, Robinhood users have no idea that the reason they and their fellow retailers can trade “for free” online is because their order streams are shared with bigger, richer fish.
They are called upon to trade as much as possible, as quickly as possible, via digital nudges designed by behavior specialists whose job is to create the most addictive interfaces. Much like digital ‘loot boxes’ entice kids to play online video games and in some cases spend real money on in-game things, nudges on trading platforms – push notifications , happy reward icons, hot stock listings and the like – aim to get the endorphins going and the money flowing. No one receives a special reward for buying and owning an asset. Is it any surprise that Robinhood’s growth is driven by trading complex and speculative assets like options and NFTs?
More trading is, of course, correlated with more losses for individuals. But even for those who are not engaged in this type of gamified trading, there is a downside – bizarre market swings that are driven in part by this new generation of small-scale speculators (not just consider the ‘investing’ meme. , but the role of retail platform traders in the large fluctuations in commodity prices last year).
It can be argued that it is unfair to stop the little guy from doing what the professionals do. But there are also questions to be asked about the social value of high speed trading across the board. “It’s such a waste,” says Hilary J Allen, a professor at the Washington College of Law, specializing in fintech regulation. Not only gamified trading, but “also the idea that we are drilling holes through mountains to make fiber work to cut someone’s trading time by a millisecond. I mean, come on!
All of this shows how far our market system has evolved from what it was originally designed to do, which is to mediate between savers and borrowers by getting money to where it is most. productive. The opposite of this is investment apps like Robinhood. It is not about actually investing, or even playing with the financial system. They turned the system itself into a game.
Technology has made markets faster, but arguably not better. It certainly didn’t make them any cheaper. As academics like Thomas Philippon have shown, none of the many technological “innovations” in financial markets since 1880 have actually reduced the cost of financial intermediation. Someone is making as much money as ever. Fintech makes it harder to see who.
How to fix things? It is possible that Robinhood will become a victim of its own success. The company offers users at least 20% of the IPO shares, but knows what the flash mob will do with it in the long run.
The Securities and Exchange Commission, which has previously fined the company for various wrongdoing, is expected to force platforms like Robinhood to clarify what “free” trading really means. How and with whom is user data shared? The same should, of course, go for any broker. Regulators should also apply existing anti-fraud and anti-manipulation rules to subreddit forums frequently used by online retail traders (chat rooms are already monitored).
I also think it’s time to rekindle the conversation on how to structure a US financial transaction tax, which is already in place in some European countries. Any income earned could be used to build the digital capacity of regulators. They will need it.
Source link
