The Wall Street Journal has stirred up a bit of controversy with a new article on “men” getting addicted to the stock market. Full disclosure: The Wall Street Journal (WSJ) has been engaged in a protracted effort to discredit alternative exchanges, such as Robinhood, and to discourage the kind of group gambling that has cost short sellers of GameStop and AMC billions of dollars.

In fact, WSJ namechecks discount brokerage, Robinhood, in the second paragraph of its expose, implying it is the kind of app favored by compulsive traders. More disclosure: NewsCorp, which also owns Dow Jones, owns WSJ. So here we have the owners of the most addictive trading app on the market — the Dow Jones — accusing a discount rival, Robinhood, of being associated with trading addiction.

In the third paragraph, WSJ makes the unsubstantiated assertion that these problem traders are mostly new, mostly started trading during the pandemic, and are mostly attracted to “meme stocks” such as GameStop and AMC. However, Netflix and Tesla are also considered meme stocks, supposedly over-valued due to large online fanbases.

First off, compulsive traders are almost always “new” because they quickly get wiped out. It’s hard to be a trading addict for decades. If you are successful trading over the long run, they don’t call it addiction, they call it a job. It’s only when you’re taking risky bets and the losses are mounting that people see their trading as a problem.

WSJ‘s stock tables are probably responsible for far more compulsive trading and addictive behavior than any other information source. The movements of the stock market are announced by the media more frequently than the weather. WSJ‘s Dow Jones Average permeates the zeitgeist as the most powerful number ever devised. 

Here are some of the more recent compulsive trading failures facilitated by Dow Jones:

• The Enron collapse
• The penny stock fiasco
• Junk bond trading schemes
• The savings and loan bailout
• The subprime mortgage meltdown
• The day trading craze

WSJ live markets lead writer, Gunjan Banerji, then blames smartphone apps for the problems of trading addicts, and not the development of futures options, which are the riskiest of stock market wagers and a market that Dow Jones encourages. Their own Dow Jones Industrial Average futures market “allow[s] traders to profit by speculating on the future price movement of the Dow Jones Index.” 

Buried in the article is an admission of the role indexes and exchanges play in trading addiction:

Trading in contracts expiring the same day, which are the riskiest, has soared to make up more than half of all trades in the market for S&P 500 index options.

Banerji mentions the crossover between compulsive sports betting and trading addiction. We have covered problem sports betting on this blog extensively. The combination of a Supreme Court ruling and the ubiquitous smartphone has created a situation where children must be trained to ward off predatory gambling empires that trade publicly on exchanges run by Dow Jones. Banerji admits,

Unlike sports betting apps such as FanDuel and DraftKings, most brokerage apps don’t post warnings about gambling or offer hotlines to seek help.

Banerji doesn’t cite many sources for her scenario, but she does attend numerous Gamblers Anonymous meetings, and she relates one tale after another of ruined lives due to compulsive trading. Just this month, the journal Trends in Psychiatry and Psychotherapy ran an article concluding:

[D]ay trading and cryptocurrency investing [can both] be associated with social and mental health burden.

A study of nearly 10,000 day traders in Australia found that 7.6% exhibited problems such as sleep loss, depression, and an inability to limit trading. Interestingly, 90% of the day traders also gambled. The Brazilian authors also cite studies of cryptocurrency trading. Trading addicts tend to see the outsize gains and discount the associated risks. The researchers distinguish between investors who buy and hold crypto as part of a portfolio, and traders, who are often not diversified and looking for instant gain.

The authors concluded, “[C]ryptocurrency trading was significantly and positively associated with problem gambling severity.”

The researchers note that people suffering from trading addiction rarely seek treatment, so there’s an untapped market to tailor interventions for people experiencing problems. WSJ notes that many attend Gamblers Anonymous meetings. The recovering addicts that Banerji interviews are self-aware of their problems moderating their own compulsive behaviors.

One solution, highlighted by Banerji in the WSJ, is the smartphone app, Bangam, which blocks access to trading-related sites while providing real-time support for those with an urge to trade or gamble. A recent study from Thailand, which has a national ban on gambling, found that nearly 10% of stock market investors exhibited problem gambling behavior, and nearly 5% had trading addiction.

One solution not mentioned by WSJ? A ban or tax on high-speed trading.

Written by Steve O’Keefe. First published December 30, 2024.

Sources:

“More Men Are Addicted to the ‘Crack Cocaine’ of the Stock Market,” The Wall Street Journal, December 20, 2024.

“How to Trade Dow Jones Futures,” RJO Futures, 2024.

“Problematic trading: gambling-like behavior in day trading and cryptocurrency investing,” Trends in Psychiatry and Psychotherapy, December 2, 2024.

“Compulsive Gambling in the Stock Market: Evidence from an Emerging Market,” Economies, January 2023.

Image Copyright: Andreas Poike, used under Creative Commons license.