One of my friends does successfully trade on Forex, hence I started to read about it..It looks like I am not the only one to get interested in Forex as many more Millennials are…
Analysts often attempt to define the average forex trader, and how they may speculate on the currency markets. As investors, we are all perhaps naturally inclined towards recognising patterns among vast pools of data. But does the user-base of the world’s largest marketplace really adhere to any specific, demographic trends? Will traders of different ages and backgrounds respond in different ways to the same movements of the market?
When we consider the various generations of post-war society, we often assume that each has its own distinct outlook and set of values when it comes to finance: baby boomers are more carefree with their assets, while millennials are cautious, perhaps. But how true is that, when we look at the evidence?
In most developed economies, average household incomes for young professionals have fallen steadily over the past three decades. This, coupled with the rising levels of student debt, means that the first financial priority for many millennials is simply to meet a rising cost of living.
In contrast, baby boomers have already reached – or are on the verge of – their retirement age. A generation of high employment, increasing salaries, and high levels of home ownership, the baby boom generation is more financially secure than any other in history.
Yet, despite the more limited resources, market analysis shows that it is the youngest age bracket of 18 – 29 year old traders that is the group most attracted to currency trading as a high risk endeavour.
Is this the result of youthful recklessness or financial desperation: that high levels of college debt make the prospect of “a big win” and maximum capital growth appealing, at any cost?
In contrast, the baby boomer generation is more risk averse: they are happy to realise capital growth, but at a steadier pace, and through a means that must have a level of in-built risk management, too. And, despite having access to substantially greater cash reserves, the older generation is less willing to invest its wealth. The over 55s trade just 10 per cent of their net worth on forex markets on average. The under 35s are willing to stake 18 per cent of their overall wealth.
Technology and Information – Staying on Top of the News
While the baby boom generation appears to enjoy several financial advantages over the generations which followed, there is one area where the millennials have the edge: technology. And it is the ability to be tech-savvy that enables millennials a greater edge when starting to trade online.
Unlike the millennials, baby boomers are not what we call the “digital native” generation. Traditional news sources remain the primary means of information gathering for the over 55s – print media and television news broadcasts still retain their influence over this section of the population.
The digital revolution has radically changed how millennials and subsequent demographics consume the media. 29% of millennials have never bought a newspaper (Bizreport); a study of the most popular news stories found that those aged under-35 only came across those top news reports (54%) through Facebook alone. But, how is this significant? Every forex trader understands the intrinsic value of timely market information when executing trades. Thus, can we argue that with breaking market updates at their fingertips, millennials are the only generation to have the confidence and means to execute riskier trading strategies?
Forex and Technology – An Ever-growing Relationship
As Fintech continues to expand into all aspects of financial markets, forex trading platforms themselves are likely to shape the trading patterns and behaviours of each generation. The first web-based forex platforms emerged when the ‘baby boom’ was already well into its middle phase. Yet, it is the millennial generation that is keen to explore new software products, and is comfortable learning how to operate new programmes in a self-taught environment. Baby boomers, on the other hand, are not so quick to adopt new services and applications. In this sense, the baby boom is once again more risk averse.
How does this shape our understanding of the forex generations? It means that online trading platforms tend to filter out older users, simply by being a new form of technology. A millennial might create a forex trading account simply to test the features, explore the site, and learn the processes through a demonstration account. A baby boomer using a forex platform is far more likely to be an individual with a pre-existing understanding of the markets and trading, and who has learned to operate the software platform simply as a means to an end.
Interpreting the Findings
Finally, how is money earned and spent by our two groups? User data tells us that highest among millennials’ list of priorities is managing the cost of living expenses: school fees, housing, credit card fees and vehicle payments. For baby boomers, investment is a means to accruing wealth. This may be the key defining factor as to why each generation differs in their trading habits. Baby boomers are far more at ease with investment than speculation. They prefer to hold long-term positions with incremental gains.
Although we have interpreted the millennial trading strategy as being risk-positive, there may be another explanation. Perhaps it is not the hope of a “big win” which motivates younger traders to adopt riskier patterns, but instead the desire to generate earnings on a daily basis in order to cover their ever-rising costs of living. In this respect, the “riskier”, frequently-changing trading patterns may simply be a characteristic of a greater hunger to realise consistent, daily gains.
Ultimately, though, the currency markets trade morning, noon, and night, and are accessible to the largest user-base of any financial market on the planet. Individuals of every gender, background, age and income are participating in the market at all times. Although we may find some broad similarities between traders of a shared demographic, there is never an “average” forex trader.
Before you sit down and contemplate which trader type you fall into, ensure you have these core skills down to a T when it comes to trading forex online. Take a look at our 10 Commandments of Forex infographic below: