Every day, traders make countless decisions that shape their financial futures, yet many are unaware of a subtle force influencing their choices: information bias.

This cognitive tendency can significantly skew our perception of market dynamics and lead to suboptimal trading outcomes.

Understanding how information bias affects our decision-making process is essential for traders looking to improve their performance and avoid common pitfalls.

What is information bias?

Information bias refers to the tendency to seek out, interpret, and remember information in a way that confirms our preexisting beliefs or hypotheses.

In the context of trading, this can manifest as a predisposition to favour certain types of information or sources, potentially leading to skewed analyses and flawed trading strategies.

Several types of information bias are particularly relevant to trading.

Confirmation bias, for instance, involves seeking out information that supports our existing views while disregarding contradictory evidence.

Availability bias occurs when we overemphasise easily accessible or recent information, potentially ignoring equally important but less prominent data.

Another common form is anchoring bias, where we rely too heavily on the first piece of information encountered when making decisions.

To illustrate, consider a trader who has invested heavily in a particular stock. They might subconsciously seek out positive news about the company, pay more attention to bullish analyst reports, and dismiss or rationalise any negative indicators. This selective information processing can lead to a distorted view of the stock’s true value and potential risks.

How information bias affects trading decisions

The impact of information bias on trading decisions can be profound and multifaceted.

One of the most significant effects is overconfidence in decision-making. When traders consistently expose themselves to information that aligns with their beliefs, they may develop an inflated sense of their ability to predict market movements. This overconfidence can lead to excessive risk-taking and a failure to adequately hedge positions.

Moreover, information bias often results in the neglect of important information. By focusing solely on data that confirms their existing views, traders may miss crucial signals that could indicate a shift in market trends or underlying fundamentals. This tunnel vision can be particularly dangerous in volatile markets where rapid changes are common.

Misinterpretation of market signals is another consequence of information bias. Traders may assign undue importance to certain pieces of information while downplaying others, leading to a distorted understanding of market conditions. For example, a trader might overreact to a single positive earnings report while ignoring broader economic indicators that suggest caution.

Common sources of biased information in trading

In today’s digital age, there are numerous sources of potentially biased information that can influence trading decisions.

Social media platforms and online forums have become increasingly popular among traders for sharing insights and discussing market trends. While these can be valuable sources of information, they can also create echo chambers where certain viewpoints are amplified and opposing opinions are marginalised.

Financial news outlets, both traditional and digital, can also contribute to information bias. The need for constant content and engaging headlines can sometimes lead to sensationalised reporting or an overemphasis on short-term market movements.

Personal networks, including friends, colleagues, and mentors, can similarly reinforce existing biases if not balanced with diverse perspectives.

Recognising your own information biases

Recognising our own information biases is a crucial step in mitigating their impact on trading decisions.

Self-assessment techniques can help traders identify their tendencies towards certain types of information or sources. Keeping a trading journal that includes the rationale behind each decision can reveal patterns of biased thinking over time.

There are also warning signs that may indicate biased decision-making. These can include a reluctance to consider alternative viewpoints, emotional reactions to contradictory information, or a tendency to attribute successful trades to skill and unsuccessful ones to external factors.

Strategies to overcome information bias

To overcome information bias, traders can employ several strategies.

Diversifying information sources is paramount. This means actively seeking out a range of perspectives, including those that challenge our existing beliefs. Engaging with contrary opinions, even if we ultimately disagree with them, can help broaden our understanding of market dynamics and potential risks.

Implementing a structured decision-making process can also help mitigate the effects of information bias. This might involve creating a pre-trade checklist that requires consideration of both bullish and bearish arguments before entering a position. By systematically evaluating multiple viewpoints, traders can reduce the influence of personal biases on their decisions.

Using quantitative data alongside qualitative information is another effective strategy. While news and analysis can provide valuable context, hard data on factors like price trends, volume, and financial metrics can offer a more objective basis for decision-making. Balancing these different types of information can lead to more well-rounded and less biased trading strategies.

The role of technology in mitigating information bias

Technology can play a significant role in mitigating information bias.

AI-powered news aggregators can help traders access a wider range of perspectives more efficiently, reducing the risk of information silos.

Sentiment analysis tools can provide insights into market mood beyond individual perceptions, offering a more objective view of trader sentiment.

Automated trading systems, when properly designed and implemented, can also help reduce the impact of information bias by executing trades based on pre-defined, quantitative criteria rather than emotional reactions to news or market movements.

Conclusion

Information bias is a pervasive and potentially harmful influence on trading decisions. By understanding its nature, recognising its sources, and implementing strategies to mitigate its effects, non-professional traders can significantly improve their decision-making processes and potentially their trading outcomes.

The journey to overcoming information bias is ongoing and requires constant vigilance. As you continue your trading journey, regularly reflect on your information consumption habits and decision-making processes. Challenge your assumptions, seek out diverse viewpoints, and strive for a balanced, objective approach to market analysis. By doing so, you will be better equipped to navigate the complex world of trading and make more informed, less biased decisions.

Dear Client,

Please note that the dividends of the following products will be adjusted accordingly. Index dividends will be executed separately through a balance statement directly to your trading account, and the comment will be in the following format “Div & Product Name & Net Volume ”.

Please refer to the table below for more details:

The above data is for reference only, please refer to the MT4/MT5 software for specific data.

If you’d like more information, please don’t hesitate to contact info@vtmarkets.com.

Dear Client,

Please note that the dividends of the following products will be adjusted accordingly. Index dividends will be executed separately through a balance statement directly to your trading account, and the comment will be in the following format “Div & Product Name & Net Volume ”.

Please refer to the table below for more details:

The above data is for reference only, please refer to the MT4/MT5 software for specific data.

If you’d like more information, please don’t hesitate to contact info@vtmarkets.com.

The dollar is king, but it is at risk of losing its throne.

There’s talk going around about BRICS creating a new gold-backed international currency, sparking fears that it could spell trouble for America and the dollar as the world’s main currency.

If you trade gold and other US-related assets, you might want to read on.

Is there a good reason to create the BRICS currency?

Developing nations are growing vary of America’s financial dominance, especially with the recent sanctions from Russia.

There was a time when currencies were backed by gold. The more gold a nation has, the more money could be printed.

When the Bretton Woods agreement came into force, the US became a major economic power after World War II. The international monetary system that was set up by 44 allied nations viewed the USD as a safe currency to keep as reserves.

Under this system, gold was fixed at $35 per ounce. Countries sent lots of gold to the US, where the Treasury kept it safe. Central banks could trade their extra USD for gold whenever they needed to.

However, things took a turn when the United States faced a trade deficit, resulting in a massive outflow of USD. When President Nixon announced the suspension of the dollar’s convertibility into gold, the world was shocked.

It was a dirty move played by the US that many have seemed to forget.

As today’s currencies aren’t backed by tangible assets, countries could print more money as needed—sometimes excessively. This is one reason why inflation is rampant in certain areas.

How a BRICS currency could replace the dollar

The appeal of having a common currency among the BRICS countries is obvious.

Imagine having an independent currency that remains neutral and not pegged to any country or government. It’s a new trade route with opportunities for the BRICS countries. They no longer must trade away precious commodities to receive stacks of paper money that could lose its value overnight.

The US has the world’s largest national debt, built on a system that could collapse like a house of cards. As trillions of dollars are printed and dispatched to balance international debt, the value of USD sees a disturbing drop.

Interested in learning more about monetary policies and how money printing works?

In Episode 2 of Traders Brew podcast, Beam Chanat, market analyst of VT Markets deep-dives into the topic of central banks and quantitative easing.

Click here to listen to the podcast

How does the BRICS currency affect forex trading

The idea of a common currency among the BRICS countries — Brazil, Russia, India, China, and South Africa — has raised questions about how it could affect forex trading.

1.      Shift in currency pairs

For forex trading platforms, a BRICS common currency could mean changes in the currency pairs they offer. Instead of the usual individual pairs with BRICS currencies, platforms might start featuring pairs with the new common currency. Traders would need to familiarise themselves with these changes and learn how to analyse the new pairs effectively.

2.      Less volatility on exchange rates

For forex traders, a BRICS common currency could make things a lot easier. Right now, exchange rates between different currencies can change quickly, which makes trading tricky. But with a common currency, traders wouldn’t have to monitor these fluctuations between BRICS countries. This could make trading more stable and predictable.

3.      Impact on economic data

Forex trading depends a lot on economic data like interest rates, inflation, and economic growth. If there’s a common BRICS currency, data from these countries would become even more important for traders. Changes in one BRICS country’s economy could affect the common currency, influencing trading decisions across the board.

4.      Higher demand for gold-backed currencies

Gold is an obvious asset that will be affected, so traders should observe the movements of XAUUSD. Another easy and obvious alternative could be investing in gold-backed cryptocurrencies, but a ‘crypto’ approach to the BRICS currency hasn’t been talked about publicly yet.

No official launch date, but the BRICS currency holds weight

It’s still too early to predict when a BRICS currency will be released as we are still in the phase of economic shift and exploration. In a financial paradigm shift, it’s wise to stay informed and adaptable on the true rival to the dollar.

Open a VT Markets’ trading account now to keep up with the markets

Follow our social media channels for the latest news : Facebook | Instagram | Twitter (X)

Dear Client,

Please note that the dividends of the following products will be adjusted accordingly. Index dividends will be executed separately through a balance statement directly to your trading account, and the comment will be in the following format “Div & Product Name & Net Volume ”.

Please refer to the table below for more details:

The above data is for reference only, please refer to the MT4/MT5 software for specific data.

If you’d like more information, please don’t hesitate to contact info@vtmarkets.com.

Key Points:

• PCE Data Impact: Anticipation of the US Personal Consumption Expenditures (PCE) Price Index release is causing marginal declines in gold prices, with potential volatility based on the results.
• Long-Term Uptrend: Despite recent dips, gold’s long-term uptrend remains intact, suggesting continued strength as a stable investment.
• Geopolitical Uncertainties: Ongoing geopolitical tensions, such as in the Middle East and Ukraine, are boosting gold demand as a safe haven.
• FOMC Sentiment: Mixed outlook on future rate cuts from the Federal Open Market Committee creates uncertainty for gold investors, potentially leading to price fluctuations.

As we anticipate the release of the US Personal Consumption Expenditures (PCE) Price Index for June, gold (XAU/USD) prices edge marginally upper 0.33%, trading in the $2,400. This economic indicator could inject volatility into the market, potentially shaking the recent stability of gold prices.

Daily Digest Market Movers: Gold Price Recovers the $2,400 Figure

Gold traders are focused on the release of key economic data, including Durable Goods Orders, the preliminary Q2 GDP number, and the Core PCE for June. Durable Goods Orders are expected to increase from 0.1% to 0.4% month-over-month (MoM). The Gross Domestic Product (GDP) for Q2 is projected to rise from 1.4% in Q1 2024 to 1.9% quarter-over-quarter (QoQ), indicating that the economy is accelerating as the year progresses. The Fed’s preferred measure of inflation, the Core PCE, is expected to dip from 2.6% to 2.5% year-over-year (YoY). The latest Consumer Price Index (CPI) data revealed a continuation of the disinflation process in the United States (US), boosting gold prices and increasing the likelihood that the Fed will cut interest rates starting in September.

The PCE Data’s Impact on Gold Prices

The PCE data is crucial as it is the Federal Reserve’s preferred inflation gauge. Higher inflation could prompt the Fed to adjust interest rates, impacting gold prices as gold is a non-interest-bearing asset. Stable or rising consumer spending could support a resilient economy, potentially leading to higher interest rates, which might negatively impact gold. Strong business investment would indicate economic health, possibly leading to higher interest rates. A robust GDP report could bolster the case for higher interest rates, affecting gold’s appeal.

FOMC Sentiment and the Mixed Outlook on Rate Cuts

The Federal Open Market Committee (FOMC) has a mixed outlook on future rate cuts. While some members anticipate the need for rate cuts in the near future, others remain cautious, creating an environment of uncertainty for gold investors. This mixed sentiment can lead to fluctuations in gold prices as investors react to the potential changes in monetary policy.

Geopolitical Uncertainties Boost Gold Demand as a Safe Haven

Geopolitical uncertainties continue to significantly influence the demand for gold as a safe haven. Tensions in the Middle East and the ongoing conflict in Ukraine are prime examples. These events create a backdrop of instability, prompting investors to turn to gold to protect their wealth and thereby influencing its price.

Finance and Gold Price Volatility

Financial markets are poised to react strongly to the upcoming PCE data. An inflation rate higher than expected could lead to significant volatility in gold prices, as investors adjust their strategies based on the new economic information.

Experts Weigh in on PCE Data and Potential Rate Cuts

Jim Reid of Deutsche Bank predicts a slight increase in core PCE, which could lower the year-on-year rate to its lowest in over three years. Raphael Bostic, Atlanta Fed President, expects a rate cut in Q4, suggesting a potential series of cuts in 2025. Michelle Bowman, Fed Board of Governors, cautions that the Fed is not yet considering rate cuts.

Regional Factors Shaping Global Gold Demand

The global economic outlook remains mixed, with varying inflation and growth rates across regions influencing gold demand differently.

In the United States, potential volatility around the November election and the Federal Reserve’s interest rate decisions will be significant drivers of gold prices. These political and economic factors create an environment of uncertainty, which can lead to fluctuations in the demand for gold as investors seek safe havens.

In Asia, there is increased gold demand from central banks hedging against currency devaluation. This regional trend highlights the strategic importance of gold as a stable asset amidst economic uncertainties.

In Europe, economic stability and ongoing geopolitical tensions play a crucial role in shaping gold’s appeal. The region’s economic health and political landscape significantly influence investor sentiment towards gold. Understanding these regional dynamics is essential for comprehending the global factors that drive gold demand and influence its price movements.

Investors Prepare for Market Swings as Gold’s Long-Term Stability Shines

Gold prices are poised for potential volatility following the release of the PCE inflation data. While the long-term outlook remains positive, with gold benefiting from geopolitical uncertainties and a possible Fed rate cut, the immediate future may see fluctuations based on economic data and Fed commentary.

Investors should brace for potential market swings and consider the broader economic indicators and geopolitical events that could shape gold’s trajectory in the coming months. Despite short-term volatility, gold’s role as a stable, safe store of value continues to underpin its long-term attractiveness.

Dear Client,

To provide a more favorable trading environment for our clients, VT Markets will have leverage adjustment for certain products on July 29, 2024. Please check the details below:

The above data is for reference only, please refer to the MT5 platforms for the updated data.

Friendly reminders:
1. All product settings stay the same except for the leverage.
2. The margin requirement of the trade may be affected by this adjustment. Please make sure the funds in your account are sufficient to hold the position before this adjustment.

If you’d like more information, please don’t hesitate to contact info@vtmarkets.com.

Dear Client,

Please note that the dividends of the following products will be adjusted accordingly. Index dividends will be executed separately through a balance statement directly to your trading account, and the comment will be in the following format “Div & Product Name & Net Volume ”.

Please refer to the table below for more details:

The above data is for reference only, please refer to the MT4/MT5 software for specific data.

If you’d like more information, please don’t hesitate to contact info@vtmarkets.com.

Exchange-traded funds (ETFs) have revolutionised the investment landscape, offering traders a versatile tool to access diverse markets. For traders, ETFs present an opportunity to implement sophisticated risk management strategies once reserved for institutional investors. This article explores how ETFs can be effectively used to manage risk in your trading portfolio.

Understanding ETFs and their risk profile

ETFs are investment funds traded on stock exchanges, much like individual stocks. They typically track an index, sector, commodity, or other assets, but can be bought and sold throughout the day like ordinary stock. Unlike mutual funds, ETFs offer greater flexibility and often come with lower fees.

While ETFs can mitigate some risks through diversification, they are not without their own set of risks. Market risk affects all investments, and ETFs are no exception. Tracking error, where an ETF’s performance deviates from its underlying index, is another consideration. Liquidity risk can also be a factor, especially for narrowly focused ETFs.

Diversification: The foundation of risk management

Diversification is a cornerstone of risk management, and ETFs excel at providing instant diversification. By investing in a single ETF, you can gain exposure to hundreds or even thousands of individual securities. This spreads risk across multiple companies, sectors, or even countries.

For maximum diversification, consider broad-market ETFs like those tracking the S&P 500 or total stock market indices. These provide exposure to a wide range of companies across various sectors, reducing the impact of poor performance from any single stock or industry.

Asset allocation with ETFs

Proper asset allocation is crucial for managing risk. ETFs make it easy to build a balanced portfolio across different asset classes. For example, you might use a combination of stock ETFs for growth, bond ETFs for stability, and commodity ETFs for inflation protection.

A simple yet effective allocation for a moderate-risk investor might look like:

– 60% in a total stock market ETF

– 30% in a broad bond market ETF

– 10% in a diversified commodity ETF

This allocation provides a mix of growth potential and stability, which can be easily adjusted based on your risk tolerance and investment goals.

Hedging strategies using ETFs

ETFs offer various hedging strategies to protect your portfolio during market downturns. Inverse ETFs, which move in the opposite direction of their underlying index, can be used to offset potential losses in your long positions. However, use these instruments cautiously, as they’re designed for short-term hedging and can be complex.

For example, consider an investor who holds $10,000 in an S&P 500 index ETF. If they’re concerned about a potential market downturn, they might hedge their position by investing $2,000 in an inverse S&P 500 ETF. If the S&P 500 falls by 5%, their main position would lose $500, but the inverse ETF would gain about $100 (5% of $2,000), reducing the overall loss to $400. This strategy can provide some protection against short-term market volatility.

It’s important to note that leveraged and inverse ETFs can be particularly risky and are generally not suitable for long-term, buy-and-hold investors. Always thoroughly understand these products before incorporating them into your strategy.

Managing sector-specific risks

Overexposure to specific sectors can increase portfolio risk. Sector ETFs allow you to balance your exposure or hedge against sector-specific risks. For instance, if you’re heavily invested in technology stocks, you might consider reducing risk by investing in a healthcare or utilities sector ETF.

Some traders use a sector rotation strategy, shifting investments between different sector ETFs based on the economic cycle. While this can be effective, it requires careful analysis and timely execution.

International diversification with ETFs

Expanding your portfolio internationally can reduce country-specific risks and potentially enhance returns. ETFs make it easy to invest in foreign markets without the complexities of directly owning foreign stocks.

This approach provides exposure to various international markets, potentially reducing risk through geographical diversification. In 2017, when the S&P 500 returned about 21.8%, the MSCI Emerging Markets Index returned 37.3%, demonstrating how international exposure can sometimes outperform domestic markets.

You can use country-specific ETFs to target particular markets or opt for regional ETFs for broader exposure. When investing internationally, be aware of currency risks. Some ETFs hedge currency exposure, while others don’t, affecting your returns as exchange rates fluctuate.

Risk management through regular rebalancing

Regular rebalancing is essential to maintain your target asset allocation and manage risk. As different assets perform differently over time, your portfolio can drift from its original allocation, potentially increasing risk.

With ETFs, rebalancing is straightforward. Simply sell ETFs that have become overweighted in your portfolio and buy those that have become underweighted. The frequency of rebalancing depends on your strategy, but many investors rebalance annually or when their allocation drifts beyond predetermined thresholds.

Practical tips for ETF risk management

To effectively manage risk with ETFs:

1. Research thoroughly: Look at an ETF’s expense ratio, tracking error, and liquidity before investing.

2. Use stop-loss orders: These can limit potential losses by automatically selling if an ETF’s price falls below a specified level.

3. Monitor and adjust: Regularly review your portfolio and adjust your strategy as needed.

4. Stay informed: Keep up with market trends and economic news that might affect your ETF investments.

Remember, while ETFs can be powerful risk management tools, they don’t eliminate risk entirely. Always invest within your risk tolerance and consider consulting with a financial adviser for personalised advice.

For those looking to implement these strategies, platforms like VT Markets offer the ability to trade a wide range of ETFs, providing access to diverse markets and risk management tools.

Conclusion

ETFs offer non-professional traders a range of tools for managing risk. From providing easy diversification to enabling sophisticated hedging strategies, ETFs can help you build a resilient portfolio. By understanding how to effectively use ETFs for risk management, you can navigate market uncertainties with greater confidence. As you apply these strategies, remember that successful investing is a journey of continuous learning and adaptation.

Sydney, Australia, 24 July 2024 – VT Markets, an award-winning brokerage, announces the launch of its ‘Be a Trading Athlete’ campaign, an online trading competition hosted on the VT Markets App with a USD 14,000 prize pool. The competition runs from 24^th July to 12^th August 2024 and is open to all global users with a Live Account.

This large-scale global competition follows the success of VT Markets’ previous campaign, FIFA 2022, which saw overwhelming participation. The brokerage anticipates attracting up to 8,000 new users by the end of this season.

The competition is divided into four periods, each focusing on a different sport every five days: –

● Shooting: 24 July– 28 July 2024
● Swimming: 29 July – 2 August 2024
● Track and Field: 3 August – 7 August 2024
● Boxing: 8 August– 12 August 2024

Participants are required to complete tasks and earn tickets during each period, including trading, depositing, and checking-in, with up to 21 tasks per period. The top 20 participants with the most tickets will share the USD 14,000 prize pool at the end of each period.

“We are thrilled to bring this competition to our users worldwide during this spirited sports season”, says Kyzer Ong, App Campaign Manager of VT Markets. “As a growing international brand, we continually seek ways to foster inclusion and uphold our belief that trading can be easy. Our goal is to engage our clients through their shared interest in sports and inspire them to apply their competitive spirit to trading. This competition underscores values of resilience, strategy planning, and adaptability in uncertain times. Additionally, we are excited to introduce our highly anticipated Copy Trading feature in Q3 2024”.

The upcoming Copy Trading feature aims to empower investors on their financial journey by offering portfolio diversification. Traders can automatically replicate the portfolios of seasoned professionals and maintain an active portfolio passively, which is suitable for traders of all financial literacy levels.

To participate in the ‘Be a Trading Athlete’ competition, download the VT Markets App, register for a Live Account, and visit the Promotions Page to opt-in.

About VT Markets

VT Markets is a regulated multi-asset broker with a presence in over 160 countries. To date, it has won numerous international accolades including Best Customer Service and Fastest Growing Broker.

In line with its mission to make trading accessible to all, VT Markets currently offers unfettered access to over 1,000 financial instruments and a seamless trading experience via its award-winning mobile app.

For more information, please visit the official VT Markets website or email us at info@vtmarkets.com. Alternatively, follow VT Markets on Facebook, Instagram, or LinkedIn.

For media enquiries and sponsorship opportunities, please email media@vtmarkets.com.

Or contact

Dandelyn Koh
Global Brand & PR Lead
dandelyn.koh@vtmarkets.com

Brenda Wong
Assistant Manager, Global PR & Comms
brenda.wong@vtmarkets.com