Psychology In Trading: How Pandemic Pressure Impact Our Ability to Spend & Save Responsibly

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Psychology In Trading: How Pandemic Pressure Impact Our Ability to Spend & Save Responsibly
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  • The Psychology of Trading by IG provides insight into the factors that can influence financial decisions.
  • UK consumers purchase discretionary items due to boredom brought on by the pandemic.
  • Advice, expert knowledge and commentary share how ‘fear in trading is often associated with distress and is caused by the threat of loss, real or imagined’

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COVID-19 And Its Impact On Consumer Fear:

Fear is often highly associated with finances and COVID-19 has only increased consumer fear on whether or not they feel their money is safe. According to a recent report [4], more than 53% of UK consumers are in fear that they will lose their savings due to the pandemic.

With an unstable economy likely to continue to impact the everyday consumer long after the lockdown is lifted, these fears are seemingly here to stay and continue to impact decision making.

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Insight: Fear in trading is often associated with distress and is caused by the threat of loss, real or imagined. Fear can help to keep impulsivity in check but it can also cloud decision making, causing a trader to close out a position too early, or miss out on profit by being too afraid to open a trade.

IG’s own study showed that less experienced traders were more affected by fear and uncertainty when compared to professional traders. One explanation for this is that professional traders might have experienced more losses and so could be more comfortable with the fear of loss to secure profit.

One way to limit the effects of fear is by approaching every trade with a plan, and by placing stops to reduce any losses and limits to lock in profits.

UK Consumers Purchase Discretionary Items Due To Pandemic Boredom

Despite the fear of the unknown impact the pandemic will have on our savings, research shows that UK spenders have been purchasing discretionary items, with many said to have done so through boredom and a need for lifting spirits.

According to a report from Barclays Bank [3], Brits have spent £40.6 billion on items to lift spirits during lockdown. Of these spenders, a third have found that their purchases made lockdown more enjoyable.

Purchasing goods and services out of boredom is a common behaviour within consumers but making these choices may cause greater impact than for the need to lift spirits if it impacts their future financial wellbeing.


About Psychology in Trading

The Psychology in Trading guide was created by financial experts with the help of third-party academic research. It draws on professional experience in the financial markets and empirical data from 30 million trades.

It also contains the results of two key surveys:

  • The first survey asked analysts and LR Thomas (author of Trading Psychology Made Easy) to complete 20 open-ended questions.
  • The second survey was commissioned by IG and carried out by YouGov. It questioned members of the public on a range of issues, including the impact of emotions on investing.

To learn more about this topic, view IG’s findings and to read the Psychology of Trading, visit: https://www.ig.com/uk/research/psychology-in-trading. 

Risk warning:

Spread bets and CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 76% of retail investor accounts lose money when trading spread bets and CFDs with this provider. You should consider whether you understand how spread bets and CFDs work, and whether you can afford to take the high risk of losing your money.

[1] Based on revenue excluding FX (published financial statements, February 2018); for forex based on number of primary relationships with FX traders (Investment Trends UK Leveraged Trading Report released August 2018).

[2] Does not apply to professional traders.

[3] https://home.barclaycard/press-releases/2020/7/brits-spend-p40-6-billion-on-items-to-lift-spirits-during-lockdo/

[4] https://www.comparethemarket.com/media-centre/news/households-financial-impact-from-covid/

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Jacob Wolinsky is the founder of ValueWalk.com, a popular value investing and hedge fund focused investment website. Jacob worked as an equity analyst first at a micro-cap focused private equity firm, followed by a stint at a smid cap focused research shop. Jacob lives with his wife and four kids in Passaic NJ. - Email: jacob(at)valuewalk.com - Twitter username: JacobWolinsky - Full Disclosure: I do not purchase any equities anymore to avoid even the appearance of a conflict of interest and because at times I may receive grey areas of insider information. I have a few existing holdings from years ago, but I have sold off most of the equities and now only purchase mutual funds and some ETFs. I also own a few grams of Gold and Silver

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