How Financial Education Is Shaping The Art Of Investing

Raunak Karwa Aug 05, 2020

The level of financial literacy in our country is low and has thus contributed immensely to the large income inequality that is present. The most obvious benefits from an increased financially literate population include more effective savings for retirement, better debt management, increased standard of living and finally decreased income inequality. Evidence suggests that financial education has sizeable benefits in increasing literacy and thereby positively impacting the larger population. Though in the past the cost of acquiring financial education has oftentimes hindered the consumer from following through, this seems to have changed.

Given the digitally interconnected world, especially brought forward by the onset of cheap & free internet, a freemium model has been adopted by educational institutes. Free content, aimed at influencing the masses, with topics such as the power of compounding, what are the different asset classes and their respective returns, how can you save & invest, what are the different mediums one can adopt, etc. has initiated a wave that’s brought a larger percentage of the population into a more financially connected world. The next step from a consumers’ perspective has been to enrol into courses that delve deeper into the world of investing and trading and acquire knowledge that has made them self-sufficient in their decision making, devoid of any intermediaries. DIY or do it your own is a recurring theme within the financial services landscape, and customers today have the opportunity to take trading and investment decisions independently, via platforms, internet-based services and discount brokers, well within the confines of their home.

Financial education institutes have delivered content aimed at making the consumer independent, risk-averse & dedicated in their approach to investing & trading. The below delves deeper into some key concepts that have been imparted by institutes, thereby shaping the art of investing & trading.

Trading Approach & Terminology

Trading & Investing can provide a steady stream of income if planned conscientiously and executed thoughtfully. It is imperative to follow a professional approach to trading, and some key concepts that have shaped multiple trader’s careers include being aware of the three main price points, entry, exit & stop loss and the position size with respect to your Risk Vs Reward Ratio. Inter-operability of these, especially in relation to your trade plan, goes a long way in maintaining your journey in the markets. Institutes, that follow a methodological approach to trading, often juxtapose such concepts in relation to their core curriculum.

Power of controlling your mind

Specialised institutes have initiated courses on the Psychology of Trading and the importance of being observant of your mind and more importantly how to control your emotions during market hours. Oftentimes, positions & profits have been lost because traders haven’t been able to control their emotions and have exited positions too soon or held positions too long, seeing capital erode in the process. The power of a clear mind when planning your trades is of utmost importance. We are all dogged by some negative information or scenario in our lives, subconsciously increasing the pressure and dependence we place on our trading careers. This is a recipe for disaster. Building your confidence, drowning the unnecessary noise and sticking to your trade plan will hold you in good stead over the longer term.

Community Learning & Confidence Build-Up

A key step in a traders journey is the jump they make from the textbook to the terminal and more so when they make their first trade. Of-course the basic assumption here is that the trader has taken a call bereft of any tips and primarily on their own analysis. In such instances, community learning with fellow traders, across varying degrees of experience, has massive advantages. Institutes have developed programs wherein such interaction is possible, thereby increasing trader confidence in the process.

Like in several aspects of our lives, investing & trading too has a strong connection to technology. The ease with which you leverage technology and mould it to suit your style, the longer and more successful your journey is. Terminals, software, strategies and tools have become common in the world of trading & investing, and institutes have developed and educated the customer along the way.

Financial Education has the power to improve financial literacy in the economy, positively benefit the population and decrease income inequality. Likewise, the importance of educating yourself before investing & trading is paramount to becoming a successful trader and investor.