The GameStop stock bubble in late January inspired ongoing discussions about the inner workings of the stock market, but it also had the side effect of attracting many new people to the world of retail and day trading. With the COVID-19 pandemic putting people in increasingly desperate economic circumstances, the promise of high income and financial relief from “winning big” on volatile stocks has played a role in driving a whole new population of users to the markets.
Now gambling disorder experts are growing increasingly concerned about the effect the new interest in trading might have for individuals prone to becoming addicted to risky behavior.
Unlike with long-term investing (such as a retirement fund), retail and day trading allow individuals to buy and sell stock with an eye to profiting off short-term stock price changes. Though no scientific definition for investment or day trading addiction currently exists, Timothy Fong, clinical professor of psychiatry and co-director of the UCLA Gambling Studies Program (UGSP), says the impulses spurred by short-term investment and financial speculation bear similarities to gambling disorders.
Dr. Fong defines gambling disorder as excessively “placing something of value on an event of uncertain outcomes in the hopes of winning or earning a larger reward.” Activities such as playing the financial markets and sports betting show cognitive, motivational and personality parallels between gamblers and stock traders, he says.
A person’s unique genetics and physiology play a role in their ability to process enjoyment and impulsive desires, he says. When the brain is activated by rewarding stimuli, it releases the neurotransmitter dopamine – also called the “pleasure” chemical. The release of dopamine activates the “want” feeling and encourages the brain to repeat the experience. With every repetition, the circuits in the brain become stronger, and for some, may lead to addiction.
According to a study on the relationship between day traders and gamblers, there are similarities in motivations and in personality, such as sensation-seeking, risk-taking, competitiveness, emotional instability and impulsivity. The differences between the groups lie mainly in demographics with investors tending to trend male, older and with higher-income profiles.
The inability to regulate stress, control impulses, and cope with emotions and trauma contribute to a person’s vulnerability to addiction, Dr. Fong says.
“They hope that this activity will yield positive rewards, but it's an activity based on chance,” he says. “Then when they lose money, they continue to pour more money into it with the hopes of winning more and more, and ultimately, they just fall deeper in a hole.”
Dr. Fong has seen a number of patients with trading addiction behaviors. He remembers one patient from the early 2000s who used E-Trade, one of the early electronic trading platforms, and lost millions.
He says this person would spend hours online, deriving excitement from the gains and becoming depressed when they would lose.
“They felt the loss so intensely that any loss was considered insufferable or intolerable, which created this desperation to fix it with more risk-taking.”
Technological advances and access
Technology for electronic individual and retail trading has come a long way since the early 2000s. Robinhood Market Inc., now known for its role in the events around the GameStop bubble, is just one of the commission-free trading applications available to beginner and intermediate-level investors. Other popular brokerage apps, including Webull, AllyInvest, and TD Ameritrade, attract users by offering little to no sign-up minimums or fees for trades, and provide incentives such as cash bonuses when investment thresholds are met.
The technological barriers of the past – slow internet, clunky interfaces and fees for transactions – are no more, with new applications built for speed and reactivity. Additionally, Dr. Fong says, the more gamified platforms help fuel addictive tendencies, attracting attention with push notifications about stock prices and congratulating people for trading successes with bursts of confetti or falling dollar graphics.
For many, Dr. Fong says, the availability, access and affordability enabled by these platforms generally trend positively toward contributing to an individual’s personal financial freedom.
But for people prone to risky behaviors, the lower threshold to entry has potentially damaging consequences, such as fueling impulsivity and contributing to mental health disorders. “We brought investing to the masses, but with it comes an unfortunate downside,” he says.
Though the impulses behind short-term trading and gambling are similar, they are not regulated in the same way – gambling, viewed as entertainment, is regulated by a gaming control board, while investing is regulated by government bodies, such as the Financial Industry Regulatory Authority (FINRA), the Securities and Exchange Commission (SEC) and the Commodity Futures Trading Commission (CFTC).
With so much of the human experience regulated – what we eat, drink, smoke and watch – Dr. Fong asks, should the government perhaps consider how it might regulate trading?
“When we regulate, we do it to protect public safety,” he says.
Still, though regulation would likely add friction on the path to an investment addiction, doctors, psychiatrists and public health experts must tackle the roots of the disease, not the symptoms, he says.
“We should start with a mental health evaluation to get to the story of why this is happening,” Dr. Fong says. “If someone is feeling bad emotionally, is experiencing feelings that are unpleasant, is pre-occupied by their thoughts about trading, and feels like they cannot function, those are signs they should seek some professional mental health help.”
If someone is seeking help for themselves or their loved ones, the gambling hotline (1-800-GAMBLER) can be a useful resource. To learn more, visit the UCLA Gambling Studies Program.