Anyone who has shopped for groceries with a toddler knows to be on high alert for the impulse items the store has thoughtfully placed at a child’s eye height. And these days, grown-ups investing using web platforms or mobile investment apps must also be on high alert for carefully placed virtual nudges that might encourage impulsive trades.

A growing body of research has found that many seemingly innocuous design decisions embedded in investment apps or websites — such as replacing checkboxes with swipes or highlighting lists of stocks that have had the biggest price moves — can encourage investors to trade more. That can generate profits for the brokerage, but research has long shown that it can also reduce investors’ long-term returns.

Even in an era of zero trading commissions, brokers benefit from trading volume. They might receive a commission for directing your order to a particular market maker, for instance. Or they might simply want to keep you engaged so they can entice you into more-expensive or fee-generating products and services.

Brokerages are in a bind: On the one hand, they want to make their sites as engaging, easy to use and profitable as possible. But they also need to retain their customers’ trust.

And regulators are watching as investing moves increasingly online. “Securities regulators have been focused on digital engagement practices to ensure that these technological advances incorporate adequate investor protections,” says Amanda Senn, director of the Alabama Securities Commission. “They should not be allowed to encourage poor investment practices or incorporate manipulative tactics.”

In January 2024, for example, RobinhoodMarkets settled charges by the Massachusetts Securities Division and agreed to eliminate from its app game-like features such as digital confetti that celebrated trades. Although Robinhood did not admit or deny any wrongdoing (and it had removed the confetti back in 2021), as part of the Massachusetts settlement, the firm also agreed to stop sending out emoji-laced e-mail messages about the day’s “top movers,” which the state agency argued prompted recipients to make impulsive trades. (Robinhood did not respond to requests for comment for this article.)

Brokerages have tamped down on most of the game-like features, regulators say. Still, worrisome “dark patterns” — the term for design choices that users may not realize are steering them to take certain actions — remain. Dark patterns are typically made up of two kinds of design choices: “nudges,” which encourage users toward some action, and “sludge,” which makes it more difficult to take an action.

Experts who’ve studied online investment platform designs recommend that investors watch for characteristics that might influence how they make investing decisions — especially those that might negatively affect their portfolio. Here are some of the things to look for:

Does the platform create a sense of urgency?

On many brokerage websites and apps, among the first things investors see are the one-day returns of their portfolios, news headlines or lists of “biggest movers” or “most traded” stocks. Brokerages say their research indicates that’s what clients want. “On any given day, who’s logging into the app? It’s active traders, who tend to want to know, ‘How am I doing today? What’s driving the performance of the market and my account?’” explains Jon Nelson, director of digital trading experience at Charles Schwab. He adds that the Schwab site also typically displays longer-term results next to one-day returns.

But James Tierney, an assistant professor at Chicago Kent College of Law and former attorney for the SEC, says that by highlighting short-term news and returns, brokerages “are pushing the idea that there are short-term swings in prices that are potentially tradeable and profitable. This gives rise to the false belief that by trading you can capture those gains…. And there is a ton of academic research showing the more you trade, the worse you do.”

Many online brokerages enable clients to personalize landing pages, so you can reduce the short-term distractions. But news headlines are everywhere. Benjamin Schiffrin, director of securities policy for Better Markets, a nonprofit focused on investor protection, suggests a self-imposed waiting period before making portfolio decisions based on headlines or short-term price swings.

Does the platform make it too easy to trade?

Of course, investors want their brokerage platforms to be easy to use. But investors should be wary if the website or app makes things too easy. Schiffrin, for example, is worried about platforms’ expansion of trading hours late into the night. That makes trading easier for those whose day jobs don’t allow for time on brokerage apps. But, he says, “people are more apt to act impulsively in the middle of the night.”

And in a January 2024 report, the Ontario Securities Commission said it was concerned about U.S. and Canadian investing websites and apps that enabled “one-click trading,” rather than the more typical practice of requiring a second step to confirm orders. The commission said it was also monitoring apps and sites that made it easy for unsophisticated investors to start trading options. And it alerted investors to notice mobile apps that enable trade confirmations with a swipe.

A recent experiment found that users made larger investments when they could execute trades using swipes instead of clicking on boxes. The commission said that investors are better served when platforms inject a little extra “friction into processes where it is known that users are making fast decisions — for example, placing a trade — to help prompt vigilance and thoughtfulness in decision-making.” Investors can think of such friction as “good sludge.”

Interactive Brokers’ basic web trading platform is one of the services that enables one-click trading. And Interactive, like many other brokerages, also promotes after-hours trading. Steve Sanders, the company’s executive vice president of marketing and product development, notes that these options are permitted by law, and users like them. Interactive also uses good sludge to slow down certain trades.

For example, it requires a confirmation screen for those placing market orders, which are orders to buy or sell a stock at the market price when the order is executed, no matter what that price is. Interactive uses the extra step to nudge customers to use a limit order, which specifies the most a buyer is willing to pay for the shares, or the least a seller is willing to accept, which prevents investors from being victimized by sudden price movements, Sanders says.

Does the platform make trading too much fun?

To keep customers engaged, investing platforms have experimented with design tweaks, including social media-like features such as emojis and indicators of popularity, or using vibrant colors — such as green, which traditionally denotes gains. “At best, these practices encourage motivation and engagement,” says Tierney, the former SEC lawyer. But there can be too much of a good thing. The more a brokerage app looks and feels like a gambling or gaming site, the warier investors should be, he says.

Note: This item first appeared in Kiplinger Personal Finance Magazine, a monthly, trustworthy source of advice and guidance. Subscribe to help you make more money and keep more of the money you make here.

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