Teaching financial traders how to regulate their emotions to avoid costly mistakes in investment banking.
Financial traders are learning how regulate their emotions, using tools developed by a research project co-led by Professor Mark Fenton-O’Creevy from The Open University Business School.
The xDelia project, a European Commission-funded programme, is examining the role of emotions in financial decision-making and developing and evaluating learning approaches based on these research insights.
The work is the culmination of more than a decade of research by Professor Fenton-O’Creevy who began researching professional financial traders’ decision-making in the 1990s, and has more recently turned to studying the trading activity of private investors.
In one recent xDelia study, traders in European investment banks were equipped with heart-rate monitors, which recorded their management of their emotional responses throughout the trading day.
It showed that more experienced traders are better able regulate their emotions, responding flexibly moment by moment in response to difficult market conditions.
In contrast, less expert traders are more prone to allowing emotions to overwhelm their judgement and to abandoning carefully planned strategies in the heat of the moment.
'Suppressing emotions prevents you from heeding the important signals they can give you. But you can train yourself over time to manage your emotions more effectively.'Out of the research has come learning approaches and tools, ranging from video games that respond to emotion-driven physiological changes in the body to an online diary integrated into a trading platform. these tools all help traders to be more aware of their emotions without getting carried away by them.
Saxo Bank, one of the seven partners in the xDelia project consortium, has based customer-engagement strategy on the findings. Their financial website, tradingfloor.com, is using many of the research outputs in its online educational materials for traders.
The xDelia project was funded by the European Commission under the 7th Framework Programme, Grant Nº231830, and represented a collaboration between the Open University; Centro Internacional de Métodos Numéricos en Ingeniería, Barcelona, Spain; Blekinge Tekniska Högskola, Karlskrona, Sweden; Forschungszentrum Informatik, Karlsruhe, Germany; Erasmus University, Rotterdam, Netherlands; Saxo Bank, Copenhagen, Denmark; and Bristol University, Bristol, UK.