FX and Crypto trading fueled by competition among young investors, FCA
The regulator believes higher-risk investments are not compatible with these investors’ risk tolerance or comprehension.
The Financial Conduct Authority (FCA), UK’s financial watchdog, has published a survey that found three quarters of younger high-risk investors say they feel competitive when investing in high-risk products.
According to the study, 76% of those aged under 40 who have invested in high-risk products such as cryptocurrency and forex say they are driven by competition with friends, family, and acquaintances and their own past investments.
The majority (58%) of these young investors have been making their investment decisions based on hype on social media and in the news.
The report is based on a survey of a thousand people aged 18 to 40 who invest in high-risk investment products. Not only three quarters have said they felt a sense of competitiveness when placing their money in an investment, but over two thirds liken high risk investments to gambling.
According to the survey, only one fifth has a long term strategy on those investments and plans to hold the assets for more than a year and only 8% want to hold them for more than five years, despite 60% of these investors stating they prefer more stable returns than investments that rise and fall dramatically.
The FCA also found that over 1 million UK investors (6%) increased their holdings, or bought a high-risk investment during the pandemic (April to October 2020).
The regulator believes higher-risk investments are not compatible with these investors’ risk tolerance or comprehension.
“While the FCA’s Financial Lives research shows that while those who have invested believe themselves to be more knowledgeable about financial matters than the general public, the new research found that majority of those who purchased forex or crypto (57% and 69% respectively) incorrectly believed these to be regulated by the FCA. As a result, they were unlikely to understand the lack of investor protection and the risk to their money”, the FCA stated.
Sarah Pritchard, Executive Director of Markets at the FCA, said: ‘We are seeing more people chasing high returns. But high returns can mean higher risks. We want to give consumers greater confidence to invest and help them to do so safely, understanding the level of risk involved.
‘With our InvestSmart campaign we’re taking an innovative approach to reaching those tempted by high-risk products so that they can better understand the risks and where to get advice. We will be targeting people online and through social media, helping ensure inexperienced investors don’t get played. Together with a more assertive approach to finding and taking action against scammers, we hope InvestSmart will help people invest confidently.’
The FCA is calling consumers to “invest smart” by answering these five questions before investing:
Am I comfortable with the level of risk?
Do I understand the investment being offered to me?
Are my investments regulated?
Am I protected if the investment provider or my adviser goes out of business?
Should I get financial advice?
