Business of Men

Do women make better stock traders?

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Stock trading, like many other high-earning professions, has traditionally been reserved for men. That’s not to say that women couldn’t get into trading, but there were plenty of barriers put in their way by the men who dominated the trading world.

But the old male-friendly world of stock trading is being broken up. Technology has made it much simpler for people to get into trading and the proliferation of trading advice sites has enabled people to easily get an analysis for online trading or to obtain the information they need, all of which has helped to open up trading to women.

In fact, there is plenty of evidence to suggest that women are not only just as capable as their male counterparts when it comes to trading, they are actually much stronger performers. According to a 2012 report the percentage of women involved in stock trading is rising and, based on the data, women are, on average, better traders than men.

A number of reasons have been put forward to explain why that might be the case:

  • Men hate to be wrong and are slower to admit a mistake
  • Women are calmer in a crisis, less prone to panic and more disciplined
  • Women find it easier to reject a potential trade than men
  • Women are more likely than men to stick to a strategy
  • Women are more cautious about initiating a trade

Unnecessary risk

There have been several reports underlining the fact that women make better traders than men, largely because they are less prone to taking unnecessary risks.

One trading company called Financial Skills analyzed data gathered from investment interns and juniors who used their trading simulations. The evidence showed that while both men and women lost money – normal for junior traders – the women traders lost far less.

Male traders also struggled in comparison to their female counterparts when it came to following the rules. The traders using the simulation were given strict rules about when they were allowed to trade. Men were 2.5 times more likely to break the rules than women, and they also made a significantly higher volume of trades, triggering higher brokerage fees, while being less profitable. They were also found to be less efficient than women at short-selling.

Another study, detailed in the Sydney Morning Herald in 2017, found that in Finland, although male trading activity far exceeded female trading for volume, female traders were more successful. They were also more likely to adopt a contrarian position, and that while they appeared to lose more money in the short term, in the long term, they made higher profits, buying low and selling high to a greater extent than their male counterparts.

Boys will be boys

A third study produced more bad news for men. Back in 2001, two behavioral economists published a report that showed that men made 45 % more trades than women, and secured net returns that were nearly a percentage point worse. The report suggested that this discrepancy was down to overconfidence on the part of male traders.

It is this psychological aspect that could be at the root of the apparently stronger performance of women. It is difficult to be certain of the direct reasons for this discrepancy – and it is possible that many factors could be at play, but it isn’t too far-fetched to suggest that men who have grown up in a society that encourages boys to be aggressive and to take risks may not have the right temperament for trading.

Successful trading is not about split-second decision making, recklessness or machismo. The best traders have carefully calibrated plans and base their decisions on evidence, logic and reason. They are not reckless, don’t chase their losses, and are content to close out a losing position rather than risk further losses in pursuit of an ego-saving miracle profit.

Conclusion

There is no evidence that there is a biological explanation for women outperforming their male counterparts. Instead, it seems likely that men are taught to embody precisely the type of qualities that lead to failure in stock trading. So, the lesson here for any budding trader – man or woman – is to avoid the common failings of male traders. The secret to trading success is to not rely on emotions, reactions or instinct, don’t let ego enter your thinking, even for a second, and be disciplined enough to stick to your plan, whatever happens.

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