The danger of easy money in investment apps: "Either you are an expert or what you do when 'trading' is a bet"

The danger of easy money in investment apps: "Either you are an expert or what you do when 'trading' is a bet"

Laura is 23 years old and doesn't know much about investing, but some friends have recommended an application in which just for joining they give her a share in a company and, in addition, for each friend who makes an account with her code, she between 10 and 50 euros will arrive as a reward. “I decided to make an account in the app taking advantage of the promotions, and it is true that you are supposed to sell your data, but honestly, I don't care. I already sell them when I inadvertently accept cookies from web pages and also with social networks, and if I can earn some money on top of that, all the better”.

It is the same case as Pilar, who is the same age and has the same notions about the world of investment. At the moment he is not working and is dedicated to studying, and getting some money for his day-to-day life is very good for him: "I decided to join because a friend from university told me that he had become a user and that it was an app that He gave free money and... Who doesn't want free money? So I decided to do it after doing a little research and verifying that it was not something fraudulent or that it could harm me.

This is the case of many of the young people who access investment applications without previous advice or experience, attracted by the reward that the company gives them for creating an account and convincing their friends to join as well. Specifically, Laura and Pilar are users of Trade Republic, a German investment company that has been operating since 2015, supervised by BaFin, the German financial regulatory authority, and in turn by the German Bundesbank.

In Spain, its Country Manager is Kintxo Cortés. In addition to being registered in the German commercial register of the Düsseldorf District Court, and in the register of the National Securities Market Commission (CNMV), the powers of supervision of entities that operate in the free provision of services (LPS) in Spain fall to the supervisor of the country of origin, that is, Germany.

This app has become known in Spain mostly through word of mouth among users, who invite their relatives in WhatsApp groups or even through Instagram stories to use their code so that both of them can make a profit. economically easily and almost instantly, but it is not the first company to do so. Several years ago, Verse, another online bank, became known by the same method. “Obviously I asked everyone if they wanted to join, including my mother. It's not that I want to sell her soul to the devil, but nothing happens, and if you have the option of getting 10 euros, then that's what you get, ”says Laura.

At first glance, you may not find dangers that go beyond the transfer of personal data to a company: both your scanned ID, your age, your address, your trading experience and a selfie to verify your identity. But receiving a financial reward immediately after joining a banking platform can carry some long-term dangers, both personally and psychologically.

Jordi Torrents, who is Partner-Director of the strategic marketing agency Collaborabrands and co-director of the master's degree in Creative Brand Strategy and Management at the UPF-Barcelona School of Management, says that it is a very old strategy called 'members get members' or 'mgm'. It is used in very diverse sectors, such as gyms or clubs, but it has the peculiarity that it is only effective if the brand behind it has generated trust in the user: “Entering an app and obtaining an economic reward is attractive , but only if accessing that application already seemed attractive to me previously; if I don't know her at all, unless a friend I blindly trust has advised her, the effectiveness of this type of promotion goes down a lot”.

But in this case, these are applications that do not have a very extensive history at the Spanish level and that new users do not know about before in all cases, so a "trust transfer" is made. Trade Republic gives away a free share of up to 200 euros, immediately after becoming a user, of successful companies such as Amazon, Netflix or Apple, which citizens know even if they are not immersed in the world of investments. Torrents believes that this is a cunning rather than a smart move: “They are using the trust generated by the brand of the action they give you to create confidence in themselves.”

According to this expert, the breeding ground for these "alternative methods" of approaching the world of investment to proliferate, with many more risks and enhanced by videos on TikTok and Instagram of young influencers who claim to have made fortunes with investment, has to do with the distrust that people feel about banks after the financial crisis of 2008.

"Since banking entities created a negative precedent almost years ago, customers consider that the fact that a bank takes 0.6% of the management of your portfolio, or some 2 or 3%, is something completely abusive" .

"Investing in a cryptocurrency that they barely know because a financial adviser or an influencer says that it is the currency of the future, and that he lost a lot of money at the beginning but that in the last year he has earned 2 million euros, makes them fully involved. due to mistrust in banks”, he adds.

Both Pilar and Laura are clear that bookmakers are dangerous, and establish a significant distance between gambling and the world of investment: “I find bookmakers horrible. For me this is very different from betting. It is not the same to invest in the Stock Market, which is true that it is a bit like chance, but you study it and you do not invest your money out of necessity, you invest what you know you can afford to lose”, affirms Laura.

Ubaldo Cuesta, Professor of Communication at the Complutense University of Madrid and director of NeuroLabCenter, comments that although there is no empirical evidence, since it is a fairly new phenomenon, this type of investment tool in the hands of inexperienced users could be considered close to the 'gambling': “Either you are an expert or what you are doing when trading is a bet”. Cuesta affirms that in these processes there is much more chance than it seems.

In the case of young people, it can be affirmed that their impulsivity represents an added risk, since one of the reasons why this sector of the population can develop problems with gambling is due to the fact that the neurological structures that control impulsivity, which they are located in the prefrontal lobes of the cerebral neocortex, they do not finish maturing until approximately 30 years of age.

Ubaldo Cuesta points out that if young people have access to this application, or these applications, which have an appearance of "price contingency control" and give them money for joining, they will psychologically relate it to the "world of gifts": " The user reasons as if he had made a bet and had received something for free, it is not the world of effort. If you put all that in a cocktail shaker and shake it, you may be laying the foundations so that a percentage of young people end up being a bit addicted to trading, buying and selling. And with the probability of losing out, of course.

In this way, although these applications and economic practices are not directly related to chance and betting houses, an inexperienced use, without advice, could have similar results on a psychological level.

However, the person in charge in Spain of Trade Republic considers that access to investment without financial advice does not have a real risk since more than 50% of the clients of the German company do not have experience in the world of investment. “Today, many people know exactly what they want when it comes to investing. They are informed when they enter the market thanks to the large amount of quality content available on the Internet and the many different existing content formats”, adds Cortés.

When asked the Ministry of Consumer Affairs about this issue, they expressed that in order for them to have powers in this matter "there has to be a game, that is, it has to have a price, chance and a prize and in the case you raise, for example , there is only prize. In other words, although this could create addiction, in which we do not enter, it is not subject to regulation by the General Directorate for the Regulation of Gambling”.

On the other hand, Cortés affirms that his company does not contemplate “hypothetical scenarios”: “Currently, the average client of Trade Republic at a global level is a first-time investor, with a widely diversified savings plan. In 2021, more than half of our clients have achieved a return of more than 7%, despite the fact that the capital markets environment is one of the most difficult. The perception that many young people blindly lose their money is wrong and not supported by data,” he says.

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