Are young people changing the foreign exchange scene?
Stocks, forex, and day trading used to be sectors that were only entered carefully. However, following the rise of cryptocurrency, the demographic and the preparation for entering the market have changed. Now the trends are determined by social media algorithms and hype words, attracting younger people who chase their luck. Their behavior on the market also seems to connect with deeper psychological unrest that presents itself through their investments and losses.
In the last few years, the demography for financial investment has changed. A younger population has started to swarm the markets, particularly in the cryptocurrency sector. These youths, who are more often than not inexperienced investors, enter the market looking for high returns by conducting short-term and speculative high-risk investments. But where do they come from?
The rise of informal information dissemination
The answer to this question is similar to most social questions today: in the decentralization of information. A vast majority of the young new investors report that they read about topics such as foreign exchange trade or cryptocurrency online, whether related to news stories or randomized inputs. Once they start reading about it, the algorithms provide them with more similar content. This creates a cycle of exposure to trading content and encouragement, and for many become a new virtual social space as well.
However, these informal information sources are centered around brevity and are often conducted and promoted in a way that is meant to increase views and spur people on, rather than provide a comprehensive understanding of trends and analyses on the market. This results in an atmosphere that promotes a “fear of missing out”-environment (FOMO) as the viewership for certain financial influencers can reach over 1.5 billion views.
The FOMO-culture is further enhanced by the fact that both the circulation of investment accounts and investment apps are available at all times. Compared to traditional news sources, where new financial information was only available at the time the news was centrally disseminated, people can now check updates whenever they please. This further eggs on the sense of adventure of investors, while simultaneously instilling habits that weaken or harm physical, analytical, and social health.
Covid as an instigator for newcomers
These new social forums and exposure cycles became particularly prominent when people were affected by the pandemic. Instead of having physical social interactions where one could discuss news and investments, people become dependent on online communications. They also had more time to spend on social forums as many were furloughed, worked from home, or simply were jobless. The restrictions to stay at home also created savings that were collecting dust and proved useful for starting new investments.
Additionally, the pandemic added to the mindset of youths that is favorable to entering volatile markets, namely the volatility of life. The pandemic robbed, especially many young people, of their educational experience and their jobs. This added to the feeling of future insecurity that also stems from other anxieties related to student loans, the housing market, and issues such as eco-anxiety which has become a hot topic around this year’s UN climate conference COP26. These anxieties encourage young people to embrace risk rather than fear it and therefore may promote short-term speculative investments as much as the informal news sources.
Adaptive legislation in the works
The Financial Conduct Authority has started discussing potential new legislation for higher-risk investments. Such legislation might include obligatory educational videos prior to investment so that people are aware of the risks and encouraged to make analysis-based decisions. It has also been proposed that investors may be required to disclose personal information such as income in order to lessen the risk of losses.
The knowledge gap has been proven in a few reports. An FCA report on people between the ages of 18-40 found that almost 60% incorrectly believed that the crypto- and forex-market were regulated by the FCA. Such misinformation could lead to the misunderstanding that investors are therefore subject to investor protection which isn’t available. Only one in five of the surveyed considered keeping their investments for 12 months or more, but 60% said they would prefer less volatile markets. Even though a long-term investment could establish that, the majority enjoy and prefer the fast-paced cryptocurrency because of its social hype.
It is by no means a bad thing that more people are interested in investing and want to enter the market. However, there are several things that can help new and inexperienced investors to get a better and safer experience. One idea is new legislation with focus on risk awareness. Another is to deal with losses when they happen. A majority of the new demographic express embarrassment about talking about their losses, leading to it becoming almost a taboo discussion. This further instills the competitive and secretive nature of young investment.
Simply starting to talk about it might lead to the last advice, which is asking professionals for help. Rather than trying to figure out the market on your own, inspired by the masses, try to find good guides who can tell you better how to avoid risk. For example the best forex broker and more reviews can be found at daytrading.com website.