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How Your Beliefs About Money Shape You As A Trader

How Your Beliefs About Money Shape You As A Trader

The beliefs we hold about how the world works or should be working are primary drivers of our behavior and decisions. In order to understand how our beliefs about money may be shaping our trading habits, we must ask ourselves the following questions:

• How was money perceived and talked about in our family of origin? What was your family’s financial status?
• How did your family talk about wealth and people in better financial status than you? How about people with worse financial status than yours?
• Overall, would you say that message you got from your family was that money was easy or hard to obtain? Good or the “root of all evil”?
• How did your wider environment, country and culture influence the way you feel about money today?
• Do you feel that your culture and family have influenced your beliefs about earning, saving, spending and investing? In what way?
• What was a good lesson you learnt from your family with regards to handling money? What would you like to do different? Are you doing it?
• What were the main emotions that the topic of money evoked in your family? Pride? Worry? Frustration? What else?
• What are the main emotions you feel about money today? Is there any connection to how your family felt about money?

It is likely that your family played a significant role in forming your financial values. You may have internalized or unknowingly imitated their habits of acquiring, spending and saving or investing money.
It is also equally possible that your culture has impacted the way you see money, saving and investing. If for example, you grew up in a developing country where majority of people had to do an extra job or an extra business to survive or improve their quality of life, you may see trading as that “extra” that you need to do so to be better off.

 

Beliefs about money that may influence your trading

Beliefs are significant and deep rooted impressions and assumptions that we have for our self, the word and others. Negative beliefs often fuel unhelpful automatic thoughts and therefore lead us to problematic decisions. The following is a description of how certain beliefs could influence traders but the behaviours described are mainly examples rather than absolute outcomes of a certain belief.

Money is hard to get

If you have grown up in an environment where money was hard to get or if you have experienced financial blows in the past, then you may think that money is earned through struggle. You may feel worried and frustrated when it comes to money and have a permanent fear of lack. Even when you make profit in trading you may feel this money is undeserved and unconsciously sabotage yourself. When you are losing, you may get easily overwhelmed by worry and pessimism.

It’s better to be safe than sorry. Saving is the key to having money. Investing is too risky.

If your environment has stressed the importance of saving over investing and security over risk, if you do decide to trade, you are likely to be a conservative in your approach and often become risk averse. You may experience bouts of guilt (especially after losses) thinking that your money should have been saved instead of traded.

Money is easier to get than most people think. You must be willing to risk in order to acquire it.

Risk is a key element of trading forex. But if you always felt that money is easily acquired, you may become easily overconfident when winning. You may trade larger sizes than you can afford. You may experience anger when you are losing because you feel a sense of entitlement towards money.

Money is a symbol of success, ability, power and personal worthiness.

If your family was concerned about social class and financial status or if they were wealthy and high achieving, you may come to equate money with success and self-esteem. Inability to accumulate money may make you feel vulnerable. As a trader you may see trading success as a measure of your skill, ability and self-worth. You could be comparing yourself to high achievers in your family or social circle and feel a need to “prove yourself”. This belief could lead you to overtrade and be harsh on yourself for losses.

Other people or circumstances are to blame for my financial situation (if it is not as good as desired).

If you are making the error of attributing your financial status strictly to external factors, you might give up trading even before you give it a proper chance: you may get angry and impatient towards your broker, your mentor, the market itself. You could think that you have been cheated or that forex is a scam.

The above mentioned beliefs may manifest with different type of behaviors for every trader. Sometimes, we tend to do the opposite than we were taught or we experienced as an attempt to compensate for the uncomfortable feelings that we felt. For example, growing up with a lack of money, could lead someone to overspend when they are able to. Either we repeat or compensate for experiences, it is important to understand which are the beliefs that drive us to engage in a specific behavior. When we do, we make a step towards altering the unhelpful ones and enhancing the ones that are helpful.

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