COVID-19 and worldwide lockdowns have trained the world’s eye on a new hobby: the investment market.
In this article:
- What do the numbers say?
- Improving your financial literacy
- What are the usual pitfalls?
- The bottom line
The global pandemic brought a new class of first-time traders to the table, eager to learn the tricks of the trade and do something other than twiddling their thumbs as the world stayed indoors and online.
But with the new flurry of investment activity has come a surge in investment scams.
Cryptocurrency traders have been a particular target, with the volatile digital coins — and the wallets that host them — becoming increasingly vulnerable to fraudulent activity.
Back in November, a SQUID cryptocurrency — based on the popular Netflix series Squid Game — plummeted from a high of $2,800 to trade just cents from $0 per coin, costing many hopeful investors their life savings.
Developers made off with an estimated £2.48 million and left stakeholders in the dust.
So what can local investors do to make sure they’re protecting their investments?
Proactive spoke to the team at brokerage firm Global Prime to find out more.
What do the numbers say?
Global Prime has commissioned new research on trading and investment trends down under.
During their investigation, Prime found that almost one in five Aussies — roughly 17% — have lost significant sums of money on a bad investment or trading decision.
The research also states that just 27% of Australians say they’ve generally never made a bad financial decision regarding investing or trading.
In turn, Global’s study investigates why people lose money trading or get taken in by fraudulent scams in the first place.
Worryingly, almost one-third, or 29%, of the people who had lost money trading said they were inexperienced and didn’t know they were in over their heads.
Another one in four (or 23%) attribute their failure to not cutting their losses soon enough, and almost one in five (or 19%) were poorly advised.
Some of the other key statistics include:
- One in four men (26%) report failing at trading and losing a lot of money, compared to only 1 in 10 (9%) of women;
- Almost half (45%) of the women who had made a bad trade or investment decision said it was because they were inexperienced and didn’t know what they were doing; and
- Four out of 10 (43%) of the men who had lost a lot of money said, “I’m an experienced trader/investor, but made a bad decision on my own,” compared to only 6% of women in the same category.
Improving your financial literacy
Commenting on the research, Global Prime co-founder and director Jeremy Kinstlinger and business partner Elan Bension said: “It’s definitely concerning to see that so many Australians have been negatively impacted financially by making the wrong choices regarding trading or investing.
“More needs to be done to increase the financial literacy of Australians across the board, particularly those who may be vulnerable to falling victim to scams.”
Bension continued: “It’s especially important for young people, and all first-time traders who may be inspired to enter this world through what they see online or ‘finfluencers’ on social media, to take the time to educate themselves on any potential downfalls, so they can avoid making those mistakes moving forward.”
Kinstlinger and Benison believe it’s important for traders to increase their financial literacy. Source: Global Prime.
What are the usual pitfalls?
According to Kinstlinger and Bension, these are the six most common mistakes first-time traders or investors should seek to avoid:
Not asking to see trading receipts
The gang at Prime Global says: “Asking your broker questions like ‘do you profit off client losses?’ or ‘can you share the trading receipts with me?’ for example, will make it clear you are going to hold your broker accountable.
“Keep in mind that if a broker does not offer trade receipts showing they were not on the other side of your trade, you won’t know for sure if they’re profiting from your losses.”
Not fully understanding the risks involved
Kinstlinger and Bension remark: “Trading involves risk of capital loss, especially when trading leveraged products.
“If a trader goes in without a good understanding of risk management, they are more likely to lose.”
Not enough emphasis placed on the psychology of trading
The brokerage states: “You can have the best strategy in the world, but without the right mindset, a trader is bound to lose eventually.
“Unless a trader has learned to manage their impulses and emotions, they will most likely run into problems.”
Trading without a plan or strategy in place
Global’s leaders say trading without a plan can and should be likened to gambling.
“Eventually the ups and downs a trader goes through will lead to poor decision making and ultimately to the loss of capital,” they explain.
“Having a set plan and strategy in place and journaling trades helps to stick to the plan which means not making decisions on the fly.
“Knowing when to enter and exit a trade before the trade is entered and not adjusting mid trade will help you to stay on track.”
Not finding the right mentor
Kinstlinger and Bension continue: “It’s information overload online when it comes to finding a strategy to trade with, and it can be tough for a beginner to sift through the information and formulate a plan.
“Having a great mentor can really help push a trader in the right direction, and if they take it seriously, they can be held accountable to their trading mentor as well, just like a sporting coach.”
Not choosing the right broker
Finally, Global Prime says: “Lost traders learn the hard way to steer clear of high-pressure tactics, deposit bonuses or incentives.
“If a broker is trying very hard to get a beginner on board, it’s usually not a good sign as most profit from client losses and won’t have the trader’s best interests at heart.
“Traders will want to find a well-regulated broker with a personal support team, good pricing and execution of their trades, as well as public access to the founders or upper management in case they run into issues.”
The bottom line
As a trader who’s new to the game, protecting your investments — and ensuring you’re in the best position to make well-informed trades — is paramount.
Kinstlinger concludes: “At Global Prime, we hate hearing stories from traders around how they lost huge sums of money or have been taken advantage of by other brokers.
“We want to educate people about the realities of trading and empower them to make informed financial decisions.
“Everything we do is grounded in our core values of trust, accountability, fairness, and extreme transparency.
“We firmly believe that this is how the industry should behave across the board and we’re going to push as hard as we can to make trading more ethical.”