The relationship between mental health and stock trading has been debated for many years. Some research shows that those who trade stocks experience increased levels of depression, low self-esteem or anxiety as well as losing sleep due to long hours at work; however other studies show no correlation between the two hobbies for any type of psychological issue under study.
Why is there an emotional state study when trading?
The aim of this study is to explore whether investors’ emotional state is affected by the performance of their portfolios. In order to test this hypothesis, a total of 98 investors from the US were recruited into the experiment where they completed a questionnaire consisting of three sections: details of their personal financial history, information about their investment strategy and also a measure assessing their level of optimism/pessimism. Participants were asked to complete these sections once before they started trading with real money in their portfolios to establish a baseline reading of how optimistic or pessimistic, they are. The same questionnaire was then completed once after six months when participants had either made or lost money on their investments during this period.
What are the results of the research?
The results showed that the average score for optimism initially among participants was 3.92 but after 6 months of trading, this figure dropped to 1.42, demonstrating that there is a significant shift away from being an optimist following investing in the market. These findings would not have come as a surprise to individual investors because it shows that even though stock trading may be lucrative over the course of six months, the emotional effect hitting home about 6 months later will result in investors becoming more pessimistic than they were initially. The study has shown that it is important for investors to be aware of the risk involved in trading stocks which will ultimately result in negative emotional effects following six months of trading.
The emotional difference between American investors and other countries
This research paper may present some limitations; however, the main issue could stem from participants not being able to recall accurately how optimistic or pessimistic they were before investing. Also, this study surveyed only American investors who are likely to have different views on investment compared with other countries’ investors, you can look at one of the best forex brokers in the world today. This would therefore affect how American investor’s view stock trading emotionally compared with other countries where there are different financial systems. Furthermore, these results should not be generalized towards all forms of investments because it is evident that stocks vary widely in their level of risk which would therefore affect the emotional response of investors.
Despite these limitations, this study presents an interesting finding about the relationship between mental health and stock trading, demonstrating that there are negative effects on investor’s optimism. Therefore, it can be inferred that stock trading does have an effect on mental health as it shows how emotions may change due to financial loss. This means that investing should not be viewed as a hobby but rather another form of employment because if decisions are made based on emotions then the likelihood is that they will not be effective for making money.
Alicia Saville did her degree in psychology at the University of Edinburgh. She is interested in mental health and well-being.