How understanding probability can benefit your investment

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Whether you’re trading in currencies, speculating on the stock market, or even taking a spin on the roulette wheel, it’s a good idea to consider the laws of probability before making any investment.

This is because all aspects of financial activity are all affected by a huge range of variables which not only means that there’s no such thing as a guaranteed return on your investment, but also that your future profits could be governed by the unknowable rules of chance.

So what can you do to limit any financial damage to your investment? Understanding how political, social and cultural factors influence the value of a foreign currency means that it can be almost impossible to guess whether a currency will rise or fall.

2016 has already seen plenty of economic turmoil as investors misread the political situations regarding the Brexit vote and the recent US presidential election. And whilst these events occur fairly rarely, they do show how outside chances sometime deliver a surprising result.

Similarly, the tech world has delivered no end of shocks that illustrate how even the safest investment can backfire with some unforeseen results. Whilst the fact that Facebook’s stocks are now considered to be oversold will have a bearing on Snapchat’s upcoming IPO, fluctuations in the fortunes of Twitter and Yahoo show how even established companies can suffer from an endless variety of factors.

Seeing as a never-ending series of seemingly random influences can affect anything from a foreign currency to a high-flying company, it’s no surprise to find that billions have been invested in developing algo-trading systems that can anticipate market fluctuations and trade with superhuman efficiency.

But whilst such systems have had some successes, they are still open to the laws of probability that govern everything from the price of the Euro to the top online gambling at Red Flush casino. But although it may seem impossible to judge where a roulette ball will land, it’s important to remember that there are always things that we can do to increase the chances of success.

So whether it’s being like the roulette players who delay their bet until the ball is in flight, or the investor who puts in endless hours of research into the political environment of a country before investing in their currency, we can always use statistical information, prior knowledge, and pure gut instinct to boost our chances of a healthy return on our investment.

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