On my socials, someone always asks a question which really irks me!
Now I am not the type who discourages being asked questions, but what is irritating is when people don’t ask the right questions or when people don’t realize that they are comparing apples and oranges.
Why is this question irritating? Well, they are two different products meant for two completely different investor types!
The real question you should ask yourself is what kind of investor you are. If you know the answer to this, you will know which one is best for you.
So, this post is going to help you understand just that. We will take WazirX & Mudrex as a case study and try to help you explore what is best for you by understanding what kind of investor you are.
Let’s go then!
1. Investor Types
The field of behavioral finance has come up with various models to classify investor types. One such model is the Pompian behavioral model developed in 2008. This model classifies investors into four behavioral types.
1.1. Passive Preservers
A passive preserver has a low-risk tolerance & depicts a conservative investment style. Generally, investors in this category are loss averse, meaning they will try to preserve their capital’s value.
1.2. Friendly Followers
A friendly follower also has low-risk tolerance & depicts a conservative investment style. However, the degree of their low-risk tolerance and conservatism is higher than that of Passive Preservers.
Generally, this category of investors is regret averse, meaning they don’t like to make decisions for fear of them turning out wrong. Hence, they like to stay with familiar investments.
1.3. Independent Individualist
An independent individualist has moderate risk tolerance & depicts a more aggressive investment style when compared with Passive Preservers & Friendly Followers.
Generally, this category of investors is overconfident, meaning that they believe in their own abilities & more likely to risk their capital.
1.4 Active Accumulators
An active accumulator has high-risk tolerance & depicts a very aggressive investment style when compared with the others.
Generally, this category of investors is extremely overconfident, meaning that they have a very high belief in their abilities & lack self-control, which implies that they are likely to take major risks.
WazirX is a centralized cryptocurrency exchange (CEX). It allows its users to buy and sell various cryptocurrencies and provides charting tools within its trading application to make informed choices.
They have automation strategies available too, whereby you can create your own trading bot. This API-based connectivity feature will allow you to set rules for investment.
However, you will remain responsible for picking the coins and trading decisions you want to invest in.
2.2. Target Market & Advertising
The WazirX target market is retail investors who look for the “stock market” feel of trading. The assumption here is that investors are the best judge as to what to invest in and are comfortable in making timing decisions for entry and exit.
In other words, the platform itself expresses no opinion on the investment process and merely facilitates the exchange.
The advertising reflects the above in its content and tone. This is a place where dreams come true, and it is so easy that anyone can do it. Audere est Facere is the French expression that describes this appropriately. It is translated as “to dare is to do”.
The target market, hence, is the more daring types of investors with high-risk tolerance & a penchant for doing their own research.
Mudrex is an automated investment strategy provider for crypto. In layman’s terms, they offer curated investment products that you can choose from depending on your risk profile.
Mudrex offers four broad products:
- Coin sets are baskets of cryptocurrencies chosen due to their identification with a particular theme. These coin sets allow you to invest in ideas.
- Mudrex Mints is a set of three products that are similar to the mutual fund formula. Fund management is the headache of the Mudrex trader while you, the investor, generate an income passively.
- Mudrex Algosare technical analysis-based trading bots are offered on the Mudrex platform by their traders. A variety of strategies are available to invest through in an automated manner so that you don’t need to learn TA or find the time to trade actively.
- An interest account is similar to bank savings account except that it offers a 14% return per annum and is defined as low risk.
You may want to check out our detailed review of Mudrex here.
3.2. Target Market & Advertising
Mudrex is also focused on retail investors but, unlike WazirX, does express an opinion on the investment process.
The core of their product offerings is the central idea that automated strategies developed & managed by experts are a better route for the retail investor instead of investing in one’s own account.
Their advertising reflects the above in content and tone. All sorts of reasons, short of calling you the investor dumb, are put forward to explain how you don’t have the time or the required skill set to trade on your own account.
The message is to not dare & lose money. Instead, relax and let us handle this for you.
The target market, hence, is the more conservative types of investors with low-risk tolerance & a lack of drive to do their own research.
4. Maybe Ask Yourself What Is Best For You?
Having broken down both services to their bare bones, the questions you need to ask yourself are:
- How comfortable are you with losing your capital?
- Are you comfortable undertaking research and trying out new things?
- Are you comfortable with your own knowledge and skill set?
- How would you rate your knowledge of crypto?
- How many hours a day can you dedicate to trading?
- Are you the kind of person who finds himself doubting your decision-making?
- Do you rely on others for investment advice, or do you go your own way?
Your answers to the above will lead you to classify yourself as one of the four behavioral investor types.
If you are a passive preserver or a friendly follower, Mudrex is the right fit for you. This is because it will allow you to overcome the behavioral traits holding you back by delegating the investment process to someone who is more skilled and knowledgeable than you.
Whether you are an independent Individualist or an Active Accumulator, WazirX is the right fit. This is because it will allow you to fully express your behavioral traits and not become bored by the inaction of being passive or the loss of control that you may feel.
The animated movie Ratatouille features a saying that goes, “Not everyone can be a good chef, but a good chef can come from anywhere.”
Surely, the movie goes the completely insane (and in some way cute) route of a rat being branded the best chef in France!
The point is that merely asking yourself a set of questions is not enough. Like a chef, a good trader can come from anywhere, and experimenting is the way to determine if you have what it takes.
Similarly, if, despite all your knowledge and skill set, you exhibit a lack of self-control, there is nothing wrong with automated strategies.
Finding the right fit for you is a journey; you will never realize your full potential if you don’t experiment.