Intuitive Product Design is The Missing Piece in Trader Safety

A couple of years back, our team conducted market research on beginner F&O traders' behavioural patterns and the potential features that can make their trading experience simpler and safer. A daily trader, who also had a well-paying full-time job responded, “I only need a feature that can stop me from trading.” His response reflected his state of being hooked to the thrill of winning in a highly volatile space. 

Conditions like these perpetuate a general sense of fear and anxiety around trading- making it difficult for new traders to evolve as experts. While initiatives that advance education and risk management are essential, intuitive product design is the key to truly solving for trader safety.

The Psychological Rollercoaster of Trading

Good intuitive product design is always rooted in a deep understanding of the psychology of its users. Likewise, a fresh approach to designing trading platforms must align meaningfully with a trader's mental model and journey. Over the past 8 years of building products for traders, I have witnessed a common psychological pattern that divides a typical trader's journey into three distinct stages:

1. Beginner's Luck: Novice traders, armed with limited capital and low expectations, often experience a surprising level of early success. This is due to their laser-like focus on understanding the rules of the game, without being too swayed by common biases like overconfidence, loss aversion, and recency bias.

2. Image Formation and Destruction: As the initial success builds self-confidence, traders start to view themselves as smarter than the pack. However, this adrenaline rush can quickly spiral out of control, leading to emotional trading and over-leveraging. When these bets inevitably crash, the trader's self-image and confidence are shattered.

3. Cognitive Dissonance and Revenge Trading: Faced with the stark contrast between their initial self-perception of being a skilled trader and the new reality of heavy losses, traders often fall into a state of cognitive dissonance. In a desperate attempt to reconcile this inner conflict, they turn to courses, expensive tools, or even revenge trading, further exacerbating their financial woes.

The Unchecked Influence of Behavioural Biases

At the heart of this psychological journey lies fundamental human biases that are deeply ingrained in our nature. Confirmation bias, overconfidence, gambler's fallacy, and loss aversion can all contribute to traders making unhealthy or irrational financial decisions. Interestingly, some of these biases were at the very core of the 2008 global financial crisis.

Recognising the importance of trader education, the industry has made strides in disseminating information and providing resources around risk management. However, all these measures are voluntary, and the onus lies on the traders to walk these paths. This brings us to a key piece of the puzzle that remains missing: intuitive product design. A system of thinking that can begin to structurally address these inherent biases, enabling and even compelling traders to make better behavioural choices in trading.

Intuitive Design: Making Safe Trading the Default Way to Trade

Learning to trade while managing risk is an essential first step for any aspiring trader. However, a more comprehensive solution lies in reimagining the design of trading platforms themselves, in a way that operates on a fundamental ‘human bias’ level.

Biases are notoriously difficult to overcome, especially in the volatile and uncertain world of trading. Intuitive, behaviour-inspired product design can go a long way in helping traders default to a safer trading environment. For instance, encouraging a user to decide on a reasonable risk appetite, helping them set and trade within healthy daily limits, nudging them to always trade with stop loss and have an exit plan, and enabling them to develop responsible trading habits, are all simple choices and practices that can be built into and pushed via thoughtful product design.

Brokers and product companies have a fundamental responsibility to bake in bias containment mechanisms into the tools and interfaces they build for traders, thus embedding risk management into the trading experience. By embracing this holistic approach, the trading industry can empower traders to navigate the psychological challenges of their journey, ultimately leading to more sustainable and responsible trading practices.

By Amit Dhakad, is Co-founder and CEO, of Punch, a SEBI-registered broker