In today’s article, experts from Profit Center FX will be happy to share their opinions on the so-called “Ringelmann effect.” Clients of brokerage companies very often use this approach. It will help you see the logic of clients who use it to achieve optimal results.
The Ringelmann effect is a part of an overall strategy. Some users believe that they can increase the return on investment if several people with different trading strategies manage the same account.
At first glance, such an approach looks promising. Perhaps it might become true due to the synergistic effect. Though, according to the Ringelmann effect, everything is precisely the opposite. Let us get all this straightened out.
Ringelmann Effect in Layman’s Terms
Maximilian Ringelmann was a professor of agricultural engineering who lived in France from 1861-1931. In 1913, he described a tug-of-war experiment with several groups of participants. It demonstrated that the more people participated in the same work, the less productive each was.
The researcher himself explained it by psychological factors. A part of the group’s energy is spent finding coordination between the participants, and collective work contributes to a partial or complete loss of motivation. The larger the group, the more each member relies on the work of others.
Ringelmann Effect in Trading
Trading on the Forex exchange allows forming a team of participants while each of them has a unique trading strategy. However, using one trading account means lower overall efficiency and return on capital.
Here are the reasons that determine the impact of the Ringelmann effect on the Forex trading:
🔵 The larger the group, the more members hope that they will succeed
🔵 Decrease in self-confidence
🔵 Lowering the level of responsibility
🔵 Internal contradictions in the group
The Ringelmann effect is an object lesson that allows you to explain some vital patterns in Forex trading. Teamwork will enable you to implement large projects, but it has a significant limitation in terms of efficiency.