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June 04, 2018

Dilemmas of an amateur investor

The perfect time for making an investment plan is the moment your first salary hits your bank. Education, banking products, business, real estate, collectibles, stock exchange, currencies, Forex, cryptocurrencies - which to choose?

If there is a happy medium, it would be: diversification. A properly diversified investment portfolio significantly reduces the risk of failure and a single flawed decision would not jeopardize the long-term goal.

Amateur investors should not look for one investor model. Differences in age, earnings, knowledge, education, preferences and risk aversion mean that investments need to be approached on an individual basis.

At the beginning of a professional career an amateur investor, who sees many years of work ahead, may be more attracted to higher risk investments. Forex and cryptocurrencies are just a couple of examples that have been financial hot topics in recent years.

Attractive 1:200 leverage

Forex is the world's largest over-the-counter (OTC) currency exchange market with a daily trading volume of more than $5 trillion. A considerable amount, since the vast majority of traders are individual investors. But be careful! Official statistics of the Polish Financial Supervision Authority say that amateurs of this type of investment are not yet learning from their mistakes and those of their predecessors. "In the long term, about 80% of clients trading on the Forex market still suffer losses," KNF reported on its results from 2016-2017.

Not all brokers warn their clients of such unfavourable proportions. However, there are exceptions on the market, one example is the service available at, provided by Conotoxia Ltd., one of the companies within the Conotoxia Holding Group. On the main page dedicated to Forex trading, users are warned about the high risk of transactions. However, there continue to be many who are trying their hand at it. Here, clients can expand and diversify their portfolios at quite an affordable price, several thousand zloty. Conotoxia Ltd. offers currencies, stocks and raw materials. However, unlike stock exchanges, clients do not buy real shares or commodities, but their CFDs (contract for difference), i.e. contracts for price differences.

Forex owes its popularity, among other things, to the fact that brokers guarantee leverage,  for example, 1:200. And at such a ratio, potential profits for investors may increase. What about losses? The offer available at guarantees negative balance protection, which means no one loses more than they have invested and Conotoxia Ltd., operating under ECNs, does not earn on the losses of its customers.

Mystery and price fluctuations

It has only taken a few years and a strong position in the media for cryptocurrencies to become popular. There are now almost 10 times more cryptocurrencies than traditional ones. It is also of common opinion that they provide more anonymity than so-called ‘normal currencies’.

Financial regulators in different countries differ greatly in their approach towards cryptocurrencies. Some are waging war on them, others are seeing a future. However, it is undeniable that it is possible to invest in cryptocurrencies by mining them or by simply by buying them.

Bitcoin (BTC) quotations, the most popular of more than a thousand cryptocurrencies, confirm that this is a high-risk investment. Even though, there is no official data about how many people have been frustrated and disappointed by this cryptocurrency. However, in just a few months BTC fluctuated by several thousand dollars, indicating just how much room there is for possible gains and losses.

It can be difficult to control the huge fluctuations of Bitcoin and other cryptocurrencies as emotions, trends, media exposure, advertising bans and the tightening of national regulations are much more influential in this market. Fundamental factors, which are key for everyday currencies, seem to be less important. Therefore, at least in the near future, investing in cryptocurrencies will remain a risky game only for the brave. More about cryptocurrencies here:

What do the sharks say?

Fortunately, there is no shortage of much safer investment instruments. These are for example, blue chips, shares of fairly stable large companies, which are included in top indices, WIG20 in Poland and Dow 30 in the USA.

There are many more products similar to the above. However, amateur investors can benefit from the guidance of experienced people who have achieved great success by investing primarily in … themselves. "You are the best investment you can make. Invest as much as you can in yourself," said Warren Buffett, one of the three richest people in the world. Benjamin Franklin, who made his career as a publisher, politician and scientist, put it even more explicitly: "Investing in knowledge pays the best interest".

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