Tobias T. Kranz

The Impact of customizable Market Interfaces on Trading Performance

One reason for market failure is the inherent complexity that excludes non-sophisticated users. Market complexity can be reduced by adapting the market rules or by simplifying the user interface. Just recently researchers started to address this topic and identified the need to merge market and interface design. Thus far it remains unclear how to design user-centric market interfaces. In a prediction market for economic variables, traders can customize their trading interface according to their informational needs. Surprisingly, we show that on average an increase in information reduces trading performance. An explanation for this effect might lie in cognitive theory. Displaying more information increases the participants’ cognitive load and hence might reduce trading performance. We are able to distinguish between trading behaviour and performance and thereby provide insight into the interplay between information and decision making. Finally, we also track the influence of individual information elements and identify those that improve or decrease trading performance.

Beware of Performance Indicators

Online trading interfaces are important instruments for retail investors. For sound reasons, regulators obligate online brokers to inform customers about certain trade related risks. Research has shown that different behavioral biases can decrease traders’ performance and hence lead to pecuniary losses. The disposition to hold losing stocks too long and sell winning stocks too early (‘disposition effect’) is such a deviation from rational behavior. The disposition effect is analyzed for the prediction market ‘Kurspiloten’ which predicts selected stock prices and counts nearly 2000 active traders and more than 200,000 orders. We show that the disposition effect can be aggravated by visual feedback on a trader’s performance via colored trend direction arrows and percentages. However, we find no evidence that such an interface modification leads to higher activity. Furthermore, we can not confirm that creating awareness of the disposition effect with textual information is suited to decreasing its strength.