Connect with us

Wealth Management

YOU’RE LESS LIKELY TO GO BANKRUPT FROM INVESTMENTS IF YOU’RE ANXIOUS

Investments are always a gamble, instead of having the security of having your money sitting in a bank account, often gaining interest, you’re taking a risk with your money in the hopes of getting a bigger return.

Learning how to invest correctly is a key skill as it allows individuals to increase their wealth by investing in assets such as stocks, bonds, and real-estate. In order to invest successfully you need to firstly, have enough knowledge about the assets you are purchasing but most importantly, have the right personality traits.

It’s common knowledge that the higher the risk, the higher the return investment, but how would this be impacted by a crisis? The COVID-19 pandemic has sent shockwaves globally, the lockdown measures that have been put in place have caused a significant economic fallout due to industries, such as aviation and hospitality, being completely halted. Governments have tried to reduce the impact by implementing various fiscal policies but they can’t do this indefinitely.

Brice Corgnet

Crises are rare, by definition they are surprising, and for this reason they are likely to trigger strong emotional responses – which can have a significant effect on investments. For this reason, we decided to look into how a crisis can affect a person’s behavioural and psychological response and trigger emotions that can impact the way they invest.

In this experiment, the participants were told to place consecutive bids to obtain a financial asset that offered a positive reward; however, this also had the potential to have a large loss that could wipe out the participants amassed earnings and bankrupt them.

To monitor the participants emotions during the experiment, we used electrodermal activity (EDA). EDA is a valuable tool in physiological science as it is a biomarker of individual emotional responsiveness that can help detect, for example, anxiety. We placed electrodes on the participants’ index and middle fingers which measured their sweat. By doing this, we were able to learn how the individual was feeling at different stages of the experiment – when the decision screen was presented to participants and when the earnings were shown.

The results show that different emotions can have numerous effects on investment decisions, but the most interesting result was that, in times of a crisis, anxiety could actually protect investors. This is because those that experienced anxiety often took fewer risks, which meant they were less likely to suffer any extreme losses and bankruptcy than their less emotional counterparts.

This is a surprising result as it contradicts what we are always told, that if you take more risks when investing, you are more likely to get a higher return of investment – normally this would be the case but we are in very unusual circumstances, therefore experiencing anxiety could improve investment decisions, and end up being the reason your company survives.

In addition, the research also revealed that emotions, such as anger and fear, can also affect investment decisions. Similar to those that showed anxiety, participants who experienced fear were more likely to decrease their bids. However, those who experienced anger when investing were more likely to increase their bids because they are unable to make peace with their losses, which then promotes risk-seeking behaviours, creating a cycle.

In sum, the research reveals that an investor’s emotion can have a large and particularly complex effect on the outcome of investments, especially if we are in the middle of a crisis, such as COVID-19. A negative event can have completely different effects depending on the individual, and having emotions such as fear and anxiousness can actually be valuable for companies – something worth considering in this uncertain climate.

Link to research paper: ftp://ftp.gate.cnrs.fr/RePEc/2020/2016.pdf

 

Authors:

Brice Corgnet, Professor, emlyon business school

Camille Cornand, Research Director, CNRS

Nobuyuki Hanaki, Professor, Osaka University

 

 

 

 

Wealth Management

HOW ALGORITHMS CAN BOOST YOUR TRADING PROFITS

Gabriele Musella is CEO and co-founder of Coinrule

 

Trading, whether for cryptocurrencies or stocks, is about buying and selling at the right time in order to increase your overall funds and make a profit.

There are over 14 million day traders[i] around the world. However, to make money when trading, you have to invest a lot of time.

It requires spotting patterns and identifying opportunities. It is this time requirement that has been a key driver in the development of algorithms to help when trading.

Day trading is when someone who buys and subsequently sells financial instruments like stocks, cryptocurrencies or futures within the same trading day.

Millennials are 58% of online traders and over 75% of cryptocurrency traders[ii], whether that is Bitcoin, Ethereum, Polkadot or any other of the nearly, 7000 existing cryptocurrencies[iii].

Low barriers to entry and the ability to trade online make it tantalising for this age group. But, is it profitable?

 

Profit or Loss?

It’s estimated that 95% of day traders[iv] lose money.

There are lots of reasons why; with under-preparation[v] being most often cited as the main reason. People start too quickly and don’t have a strategy they stick to.

So, where do trading algorithms fit into this?

 

Gabriele Musella

Trading With Algorithms

Put very simply, a trading algorithm or strategy is a set of rules that, together, define when trades should take place. The algorithm helps a cryptocurrency trader to either buy, or sell, at the right time. This enables them either to minimise losses and take profits.

The algorithm can be tested on historical data, on different and past market conditions, giving you scenarios that it will help deliver good returns when used on the current markets.

These rules can then be executed by trading bots to make the trades at the right time.

 

Why Use a Trading Algorithm?

There are three main reasons for using a trading algorithm:

  1. Time

The time needed to analyse the available market data and spot the right moment to trade is considerable. Most traders simply don’t have this time available, so a trading algorithm can help.

  1. Too much data

There is simply too much data available that needs to be analysed to make profitable trades. For example, with over 7,000 cryptocurrencies on the market, it is impossible to know everything about all of them without automated assistance.

  1. It’s a steep learning curve

What I see is that most hobby investors have about one or two hours a week available to them to learn ‘how’ to trade, ‘what’ to trade and ‘when’ to trade. This simply isn’t enough. Trading algorithms are constantly learning because of their ability to consume and analyse large amounts of market data.

 

What Are The Alternatives?

  1. Scripts

One alternative to using a trading algorithm would be to program a script. Trading scripts enable automatic trading, but they can only follow one strategy, are difficult to code and struggle to react to market changes quickly.

  1. Copying the professionals

Copy trading is where professional traders allow people to copy the trades they do. They get paid to allow public access to their trading activities. If the right traders are chosen, this can be a highly successful alternative, but the fees can be very high, up to 30% of the profit.

  1. Do it yourself

If you have the time – a lot – and the analytical skills, you may not need a trading algorithm and you can go back to trading manually.

 

How to Use a Trading Algorithm

 Choose a supplier

There are plenty of suppliers of algorithm software. Most are for large firms, however companies like Coinrule aim to help hobby investors, occasional investors and professional traders, to have easy access to trading algorithms. Coinrule’s customers are trading anything from $150 a month upwards, to $millions per month.

You can sign up for free or choose which of the three pricing plans work best for you, based on your trading budget, template strategies and required execution speed.

 

Choose Your Strategy

Choosing the perfect trading strategy takes research and time. Bitcoin traders often use a long-term strategy, with trading on other cryptocurrencies being done using shorter-term strategies. However, you need to choose your own. To help you choose check out these videos:[vi] https://www.youtube.com/playlist?list=PLA9Pvtmlbvb5cp0Ou0ePADDGzAF-vt1

 

Pick Your Cryptocurrencies

Bitcoin is obviously the most well-known, but there are nearly 7000 others. Keeping track of all of them will be impossible, so choices need to be made, at least initially. You can, of course, move between them in the future.

 

Define Your Risk Levels

One of the most important aspects of implementing an automated trading strategy is to prevent significant losses that will potentially compromise a trader’s capital over the long-term. Before making money, it’s important to learn how to protect your crypto portfolio.

Protecting funds is one of the most important aspects of the algorithm. So set your risk levels accordingly and ensure the algorithm is set up to protect you from losses.

 

Allocate A Trading Budget

When first starting to invest in cryptocurrencies, it is vitally important to set a budget that can be lost without real impact on your personal finances. This initial budget should then be broken down into a daily trading budget, i.e. how much will be invested on a daily basis. The 1% Risk Rule is an often-quoted rule[vii]. If the portfolio is, for example, £100,000, no more than £1,000 is traded on any single trade. This protects your capital from big losses.

Cryptocurrencies are in-vogue, and you hear many stories of huge fortunes, and losses, being made by people trading on these exchanges. The low barriers to trading and it all being online can tempt people in very quickly, believing they will make a lot of money. This, as mentioned earlier, is a major reason for most day traders losing money. By following the guidelines above, investing time in learning what you can, and then making use of a trading algorithm, portfolios can be protected and, ultimately, grown.

 

[i] https://brokernotes.co/wp-content/uploads/2017/08/BN-research-report_2018-FINAL.pdf

[ii] https://brokernotes.co/wp-content/uploads/2017/08/BN-research-report_2018-FINAL.pdf

[iii] https://e-cryptonews.com/how-many-cryptocurrencies-are-there-in-2020/#:~:text=According%20to%20CoinMarketCap%2C%20the%20total,4%2C928%20cryptos%20in%20the%20market.

[iv] https://cointelegraph.com/news/day-trading-bitcoin-why-95-of-traders-lose-money-and-fail

[v] https://www.warriortrading.com/why-day-traders-lose-money/

[vi] https://www.youtube.com/playlist?list=PLA9Pvtmlbvb5cp0Ou0ePADDGzAF-vtCS1

[vii] https://www.thebalance.com/day-traders-stick-to-the-1percent-risk-rule-1030858

Continue Reading

Top 10

WHY HIGH NET WORTHS SHOULD BE LOOKING AT ANGEL INVESTING IN A NEGATIVE INTEREST RATE ENVIRONMENT

By Oliver Woolley, Envestors

 

As England gets through its second lockdown, Bank of England policymakers report the UK we may be headed for negative interest rates. This would be the for the first time this has happened in the bank’s 326-year history.

With interest rates already at 0.1%, central bank officials announced an additional £150bn stimulus package, in an attempt to boost consumer spending during the second wave of the pandemic.

Despite news of a vaccine, the BoE has taken the total stimulus to £895bn, as double-dip recession forecasts emerge.

In the event of negative interest rates becoming a reality, banks would have the incentive to lend more by making loans cheaper, but account holders would likely be asked to pay to hold money in a savings account.

While plans for negative interest rates are pending, government bonds are already selling at a negative yield of -0.003%, with investors hoping for the safe haven of government issued bonds paying out to get their money back in three years.

Between negative returns on savings accounts, lower yield on bond holdings, a volatile stock market and a projected dip in property prices, investors don’t have many options to diversify their portfolio in a negative rate interest environment.

However, for investors who are comfortable with risk, early-stage investing may be the answer. Angel investors support early-stage companies through financial backing, typically in exchange for equity in the company. An additional benefit for angel investors is the generous tax reliefs offered under the Enterprise Investment Scheme (EIS) and the Seed Enterprise Investment Scheme (SEIS).

 

Oliver Woolley

What is angel investing and why is it attractive?

An angel investor (also known as a private investor, seed investor or angel funder) supports early-stage enterprises by providing funding and getting actively involved in the business. Typically, the amount invested is between £5,000 and £50,000 per investment.

Early-stage investments are high risk as the number of early-stage businesses that grow through to an exit is low. Previous research suggested that 56% of investments in early-stage companies went bust. This is why experienced angels aim to build a diverse portfolio of 20+ investments.

While angels usually have to wait a number of years before recovering their initial investment, returns can be considerable. Due to the high risk nature of angel investing, high net worth individuals are usually looking for a 2.5x Return of Investment (RoI).

When first starting out, an investor should look for a well put together business plan with a defined exit strategy. Many angels choose to join an angel network when starting out, where investors can pool investment capital and invest alongside like-minded, experienced investors.

 

Tax relief through EIS and SEIS

In order to encourage investment in start-up companies which play a vital role in the economy, the UK government has launched several tax relief programmes, including the Enterprise Investment Scheme (EIS). This scheme, which makes investing in early stage enterprises tax-efficient, has encouraged £22bn in investment in 31,365 companies.

By investing in an EIS eligible company, angels receive income tax relief of 30% of the amount subscribed for eligible shares. Investors can put in up to £1m per tax year in EIS qualifying companies for the tax relief; this cap rises to £2m if investing in knowledge-intensive EIS companies.

In order to qualify, companies have to be trading for less than seven years and can raise a maximum of £12m.

Through EIS, angels receive a Capital Gains Tax (CGT) exemption, carry back and loss relief which can be offset against CGT or Income Tax.

Looking at a practical example:

If an angel invested £10,000 and the company failed, their actual loss would only be £7,000, due to the 30% income tax relief. However, a top rate income taxpayer paying tax at 45% will be able to claim loss relief on their tax liability at the 45% level. In this example, they’re eligible for further relief of £3,150, making their actual loss £3,850.

The success of EIS led to the introduction of the Seed Enterprise Investment Scheme (SEIS), promoting investments in riskier, earlier stage companies. About 80% of UK angel investors seek relief through EIS or its sister scheme, SEIS.

SEIS allows HNWIs to invest up to £100,000 and receive 50% tax relief on their investment. In order for companies to be eligible for SEIS, they have to have been trading for less than two years and cannot have more than £150,000 in previous investment.

 

Hot investment sectors

Reports from the British Business Bank and the UK Business Angels Association reveal that many investors are still seeing positive returns during the pandemic.

While angels are battling economic uncertainty, around three quarters are optimistic about the market bouncing back within the next 12 months.

Healthcare, Digital Health and MedTech, BioTech, Life Sciences and Pharmaceuticals are the leading sectors in terms of investor engagement during the COVID-19 crisis.

Software as a Service and FinTech have fared well throughout the pandemic and are still attracting a large number of investors.

Getting started with angel investing is now easier than ever, with an array of angel networks that can provide advice and support. Industry-association, the UKBAA, offers an Angel Investment Accelerator which is designed for those new to early-stage investing.

In order to choose the right angel network, HNWIs should look for the most active networks; Research body Beauhurst recently published a list of the most active networks in the UK.

Active networks will present a greater array of screened opportunities as well as connecting new investors to more experienced ones.

The best networks cover a variety of regions, sectors and investment sizes, and they’re forthcoming with examples of previous investments, so first-time angels can make the right choice on how to grow their portfolio.

So, while looming negative interest rates may require a rethink of current investment strategies for many – it might also open up a new and exciting investment class that offers much more than just financial gains.

 

ABOUT THE AUTHOR

Oliver Woolley is CEO and co-founder of Envestors. Envestors’ digital investment platform brings together entrepreneurs and investors across geographies, communities and sectors – creating the single marketplace for early stage investment in the UK.

Envestors partners with accelerators, incubators and angel networks to provide a white-label platform empowering them to promote deals, engage investors and connect to other networks.

Founded in 2004, Envestors has helped more than 200 high growth businesses raise more than £100m through its own private investment club.

Envestors is authorised and regulated by the Financial Conduct Authority.

Continue Reading

Magazine

Trending

Finance1 day ago

MASTER YOUR DATA: TACKLING CUSTOMER RETENTION CHALLENGES IN FINANCIAL SERVICES

Helena Schwenk, Market Intelligence Manager at Exasol   Customer retention has always been crucial to financial institutions (FSIs), with the majority...

Wealth Management1 day ago

HOW ALGORITHMS CAN BOOST YOUR TRADING PROFITS

Gabriele Musella is CEO and co-founder of Coinrule   Trading, whether for cryptocurrencies or stocks, is about buying and selling...

News2 days ago

BLACK FRIDAY WEEKEND SET TO SMASH ONLINE SALES RECORDS, ACCORDING TO ECOMMERCE EXPERT

The Black Friday weekend is anticipated to be the largest for online sales on record as the UK remains in lockdown, according...

News3 days ago

ONE IN FIVE INSURANCE CUSTOMERS SAW AN IMPROVEMENT IN CUSTOMER SERVICE OVER LOCKDOWN, RESEARCH SHOWS

SAS research reveals that insurers improved their customer experience during lockdown   One in five insurance customers noted an improvement...

Technology3 days ago

PASSWORDS, BIOMETRICS AND BEYOND

By: Hicham Bouali, Pre-Sales Director EMEA of One Identity, a specialist in identity and access management   At any given...

News3 days ago

AVATRADE NOW SUPPORTING DEPOSITS VIA PAYPAL AND RAPID TRANSFER

AvaTrade continues to grow its customer offering by adding PayPal and Rapid Transfer to its supported payment methods. AvaTrade’s customers...

Business4 days ago

GOING GLOBAL: 7 TIPS TO GET STARTED

The idea of selling your products or services to new markets across the globe is an attractive prospect for any...

News4 days ago

KASHFLOW AND YAPILY PARTNER TO SUPPORT SMES WITH DIGITAL BOOKKEEPING AND CASH FLOW MANAGEMENT

KashFlow continues its mission to provide SMEs and accountancy firms with software that keeps bookkeeping easy to understand and even...

Top 104 days ago

WHY HIGH NET WORTHS SHOULD BE LOOKING AT ANGEL INVESTING IN A NEGATIVE INTEREST RATE ENVIRONMENT

By Oliver Woolley, Envestors   As England gets through its second lockdown, Bank of England policymakers report the UK we...

News4 days ago

VIVA WALLET SUPPORTS E-COMMERCE GROWTH THROUGH ITS MARKETPLACE SOLUTION

Viva Wallet’s PSD2-compliant payment solution for online marketplaces removes the requirement for them to become licensed providers of regulated payment services. Viva Wallet is able to handle the streamlined processing of customer transactions through a PSD2-compliant escrow account...

Banking4 days ago

REDUCING FRICTION ONLINE HAS BECOME BUSINESS CRITICAL

Andrew Shikiar, Executive Director at the FIDO Alliance   The global pandemic has pushed the importance of remote access and authentication...

Wealth Management5 days ago

QUICK FIXES TO LOWER YOUR CAR INSURANCE

Car insurance is something we all have to pay for, no matter how much we despise it. However, it’s not...

Uncategorized5 days ago

ALL-SEASON TYRES AND HOW TECHNOLOGY IS CHANGING THE FUTURE OF TRANSPORT

Avid vehicle enthusiasts will likely know that summer and winter tyres are developed from different rubber compounds which work at...

Business5 days ago

EQUIPPING YOUR TEAM WITH THE SKILLS TO MANAGE THE CHANGING LANDSCAPE

By David Wharram, CEO of Coast Digital   For businesses to emerge from the COVID-19 pandemic stronger than ever, companies...

Banking5 days ago

BANKING ON THE FUTURE: WHY PAYMENTS TRANSFORMATION IS THE KEY TO SUCCESS

Simon Wilson, Co-Head, Payments at Icon Solutions   Standardisation, regulation and technological innovation means payments are well on the way...

Finance5 days ago

DIGITAL FINANCE: UNLOCKING NEW CAPITAL IN DISRUPTED MARKETS

Krishnan Raghunathan, Head of Finance & Accounting Services at WNS, explores how a digitally transformed finance department can give enterprises...

Technology6 days ago

DATA DILEMMAS IMPACTING ESGS

Mario Mantrisi, Chief Strategy and Knowledge Officer, Kneip   It’s been well documented over the past few months that the...

Technology1 week ago

SIX PILLARS FOR A SUCCESSFUL CLOUD

by Giuseppe Paternò, IT Infrastructure Architect, Security Expert, and Cloud Solution Guru   COVID-19 pandemic is pushing many companies to...

News1 week ago

MARQETA CONTINUES EUROPEAN GROWTH, SIGNING THREE NEW DIGITAL BANKING CUSTOMERS

Marqeta is supporting the development and launch of three new digital banks across the UK and Europe   Marqeta, the...

Technology1 week ago

TECHNOLOGY IS OUR FIRST DEFENCE AGAINST MONEY LAUNDERING

Jesse Chenard, CEO of MonetaGo Fraud is an age-old problem that has plagued every industry since businesses began trading. It...

Trending