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Why women are better financial traders than men

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The vast majority of fund managers are male. Nearly all the bosses of the big banks are male. About 26,000 of the 31,000 individuals regulated to give financial advice are male. Yet the reality is that men, in general, are not that good at investing.

Why? Because men are too emotional. They don’t focus. They buy the latest trend. Above all, they are inclined to be just too darn risky.

How do we know this? (OK, I slightly over-egged it.) Because of a fascinating study by Warwick Business School, which looked at the habits of men and women who trade shares and funds using Barclays’ Smart Investor service.

It found that the annual return made by men who invested on the site was just 0.14% above the performance of the FTSE 100.

But the results from women were strikingly different. Female investors on average achieved an annual gain of 1.94% better than the FTSE. Compound that up over a longer period, and it makes a huge difference. If the FTSE grew by 5% a year, with £100 or $100 invested a month we’d expect the men to enjoy a gain of £18,000 or $18,000 over 20 years, while the women would make £28,000 or $28,000.

Neil Stewart, the Warwick Business School professor who led the analysis, says: “Men are just a little more likely to be drawn to more speculative stocks, whereas women are more likely to focus on shares that already have a good track record. Women also take a more long-term perspective, trading less frequently. This possibly means women are investing more to support their financial goals, whereas men are attracted to what they see as the thrill of investing.”

A hotly debated subject, particularly when considering the ratio of men to women on the trading floor and the investment banking’s attitude towards women, despite the best efforts of banks to create diversity and equality in the workplace.

For the fewer women that are on the trading floors globally, there are certain attributes that bring into question why investment banks and more have not strived to build a better balance between men and women. Studies have shown that:

  1. Women trade fewer times than men, quite a relevant stat when considering brokerage fees and settlement costs and with the need to keep costs down in this day and age, in a stringent environment making it all the harder for banks to deploy capital in a world where investors continue to demand double digit return on equity.
  2. By using more men on the trading floor, the soaring volumes of trades requires a far more sophisticated risk and compliance network, with all the high profile cases involving law suits filed against banks, in recent years, involving male traders, risk and compliance systems are still not rigid enough to cover all the bases, costing banks billions of Dollars in settlements, not to mention a tarnished reputation.
  3. Studies have in fact shown that male traders are 2.5x more likely to break trading rules than women.
  4. The same study also showed that male traders were more erroneous at taking short positions than women traders, with more than 58% of women placing short trades correctly, at the time of the study, compared with less than 53% of male traders.
  5. Overly male oriented traders are said to be driven by hormones and remuneration sentiment, male traders being more likely to chase losses as a result. Sentiment may have been that women traders were more likely to be effected by hormones, but studies have shown that it is in fact the reverse.
  6. Returning to ego, men are less likely to admit they are wrong, which can be particularly costly on the trading floor, with women regarded to be able to better maneuver through a crisis situation, the ability of women to say no paramount on the trading floor.

7.            Finally, the study that had been carried out by Financial Skills, showed that female traders lost less money than male traders, male traders willing to take more risk, resulting in not only breach of regulations but larger losses on the P&L.

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