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From wagering on political outcomes to navigating complex financial markets, everyday investors are increasingly taking greater risks, blurring the lines between speculation and traditional investing, according to a CU Boulder researcher.

Both online trading platforms and prediction markets—which allow people to bet on the outcome of future events—have exploded in popularity in recent years.

Austin Moss

Austin Moss, an accounting professor in the Leeds School of Business, says the onset of the COVID-19 pandemic sparked increased interest in the financial markets, with many new investors drawn by the volatility of stocks and the potential for quick returns.

“People were bored, but also there was a lot of volatility in the market—cruise ship and airline stocks, for example, went down by huge percentages and a lot of people thought, ‘how could a company that was worth $50 billion yesterday be worth $5 billion today?’ That really got people interested in how the stock market works,” he said. “Since then, we’ve had four years of great investment returns, so no matter what you invested in, you probably did very well.”

Surge in alternative investments

The online trading platform market, valued at nearly $9.6 billion in 2023, is expected to grow 7.3% annually through 2030, fueled by mobile trading apps that are attracting a younger, tech-savvy audience looking for greater control over their investment decisions.

Meanwhile, prediction platforms like Polymarket have brought “futures” betting into the mainstream, allowing anyone to speculate on future events. In 2024, Polymarket’s cumulative trading volume surpassed $8 billion, driven by high-profile events such as the presidential election.

"You can bet on pretty much anything these days—from the number of times Elon Musk will tweet to whether this celebrity will be raided by federal authorities," Moss said. "While not everyone is going to bet thousands of dollars on things like this, many people will make a bunch of $20 bets a day. Even if they win half, that still adds up to a loss of $100 a day—and that significantly adds up over time.”

Platforms like Robinhood, known for its commission-free trades and user-friendly mobile app, have adapted to this trend by introducing event-based contracts, such as those related to the presidential election. Moss notes that while these products may appear similar to traditional investments, they more closely resemble betting.

“On the surface, these betting products seem like investments because you’re putting down money in hopes of getting more back. But they’re actually closer to blackjack or roulette than to buying stocks,” Moss said. “The key difference is that stocks, on average, grow over time. Even if you picked them at random, you’d expect your money to increase in value. In contrast, if you randomly chose these contract-type products, you wouldn’t see that same growth. That’s really the crux: Investing generally carries an expectation of growth, while betting activities don’t have that feature.”

Options trading, once considered a strategy for experienced traders, has also gained traction among retail investors, Moss said. Options can offer substantial returns but also carry the risk of significant losses. As of the end of November, 10.2 billion equity options contracts traded in 2024, roughly doubling from the early pandemic period.

The dopamine effect

The growing interest in such alternative investments—those outside the traditional stocks, bonds and cash portfolio—reflects a broader trend toward embracing high-risk, high-reward approaches, Moss said.

“It speaks to this idea of unpredictable rewards and huge dopamine spikes,” he said. “Investing in the S&P 500 is pretty boring—you’re going to get a 10% to 20% return on your investment over a full year. But with these alternative, riskier investment strategies, you can theoretically triple or quadruple your money in a very short time frame.”

The rise of commission-free trading apps and the ease of access to both stock trading and event betting have made these activities more widely available, Moss added. Sports betting has also become more widespread: The industry posted a record $10.9 billion in revenue for 2023, a 45% increase over the year before, according to the American Gaming Association.

“Sports betting used to be illegal everywhere and states over the past 10 years have slowly legalized it,” Moss said. “Studies have shown that after sports betting became legal, people began trading more often. So you could argue that sports betting introduced them to this gambling aspect of investing. There’s only football games on certain days of the week, but the stock market is open every weekday.”

While Moss acknowledged the risk of developing harmful habits, he notes that for some retail investors, traditional stock markets can offer a safer alternative to event betting.

“While investors may experience losses in the stock market, there’s data, analysis, and a greater potential for informed decisions,” he said.

“All of these activities tap into the same psychological reward system. You see a headline, you place a bet or make a trade, and if things swing your way, you get an immediate sense of victory,” Moss added. “The problem is that the excitement can overshadow rational decision-making, causing people to chase losses or take on more risk than they intended.”