The amount of money currently in circulation across the globe is worth approximately $40 trillion, including all physical cash and the funds deposited in savings and basic checking accounts.
However the amount held in investments, derivatives and crypto assets currently exceeds a staggering $1.3 quadrillion, highlighting the growing popularity of investment worldwide.
Despite this, a surprising number of people remain quite hesitant to start investing in the first place. But why is this the case, and are there good reasons that continue to deter individuals from investing their hard-earned cash?
Table of Contents
#1. Fear of the Unknown and a Fundamental Lack of Knowledge
We’ll start with one of the more rational factors, which refers to a generalised fear of the unknown and the inherent risk that’s associated with all forms of investment.
Certainly, investing your hard-earned money requires a certain amount of confidence and trust, but it can be difficult to achieve such a positive state of mind when there’s no such thing as a guaranteed return in the world’s financial markets.
To overcome this, it’s important to research particular markets and familiarise yourself with their fundamental principles, in order to manage your expectations effectively and understand your precise risk before executing a particular type of trade.
While this can’t help you to identify guaranteed returns, it does help to inform your decisions and remove the element of uncertainty from the global financial space.
#2. A Misunderstanding of Risk
This is a significant issue for investors, who tend to misunderstand the concept of risk and its role in driving volatility and shaping your overall trading activity online.
Of course, this issue is often compounded by those around you, who regularly refer to investment as being “risky” and phrasing this as an inherently negative and damaging concept.
However, risk is often correlated with potential returns, so higher risk markets can prove more lucrative over time. When it comes to the relationship between risk and volatility, the latter refers to the degree by which prices fluctuate, so there are many different levels of risk in a disparate financial market.
What’s more, some assets (such as currencies) can be traded as derivatives, which enables investors to speculate on price movements and leverage both risk and volatility to achieve an increased profit.
#3. Believing That They Need a Large Sum to Get Started
Another common misconception is that investors require huge sums of money to get started, regardless of which market or asset class they target.
This is completely wrong, however, as not all financial markets have been created equal, while some require only relatively small sums of cash to get started.
Take the forex market, for example, in which investors can access highly leveraged products at a ratio of up to 100:1. This means that they can control large positions with a relatively small deposit, enabling you to pursue large returns with just a few hundred pounds.
Of course, leverage makes it possible to record disproportionate losses as well as gains, so you’ll need to tread carefully when setting the optimal amount of leverage as a forex trader.
