Do Women & Men Trade Differently?
A discussion of any differences between men and women should not be conducted flippantly. It should, in fact, be performed with great care. Stereotyping human beings by their biological or physiological makeup has been a prime cause of misery and oppression, and a great waste of human potential. We can try to proceed delicately and ask whether the average woman and the average man might tend to apply their equal intelligences through different strategies and examine whether there is any evidence of this in the field of trading. This needs to be an evidence-based debate, so it makes sense to start by looking at the evidence.
How Many Traders are Women?
The first issue is our sample of traders. There are far more male than female professional traders in the Forex industry, and the data we have from Forex brokers shows that men are strongly overrepresented among the client base of retail traders. Publicly available data presented by CitiFX in January 2014 showed that more than 80% of retail traders worldwide were male, although this fell to less than 60% in Europe. If you look at the names of contributors to trading chat forums, you can easily see that men are the dominant participants. So, the first question we face about gender in trading is why it is something that men seem much more likely to pursue. Based upon the fact that gender equality can be broadly said to be greater in Europe than in other areas of the world where Forex trading is popular, it may be a question of discrimination, attitude, and access to funds. However, as a profession, even if you allow for the probability of historically discriminatory hiring practices in the industry, trading (of all types) attracts far more men than women. This could either mean that it is something that women are less interested in doing, or it might mean that men rate their own chance of success higher than women do. Unfortunately, this is just speculation.
Gender in U.S. Stock Market Trading
An academic study conducted in 2001 analyzed stock accounts from over 35,000 households at a discount brokerage in the United States over a 6-year period. The study found that men made 45% more trades than women, and that this differential reduced the net returns of the men by almost 1% per year. Comparing the single men with the single women studied, the reduction was higher still, at 1.44% per year. The actual final return differential between men and women, in contrast, was statistically insignificant. This suggested that the men were more over-confident than the women and as such over-traded more. However, as the net returns were the same, this implies that the men performed better than the women at stock selection. Interestingly, it seems that these two effects were of a similar magnitude, and so they cancelled each other out.
Gender in Professional Trader Training
Financial Skills, a trading company that trains junior traders on real-time market simulation software, found that their male trainees lost on average about 35% more over the course of their first year of trading compared to their female trainees. The firm found that men broke “house rules” more often than women did, and entered a significantly higher volume of trades, which they believed accounted for the differential. The latter point is interesting and evidentially significant withint our debate, because it mirrors the evidence of male over-trading which was present in the 2001 study.
Gender Performance on the Trading Floor
Recent research published by the University of Leicester in 2016, “The Role of Hormones in the Financial Markets”, found not only that female traders tended to outperform male traders, but that in a sample, the best and worst performers at any given time were more likely to be male than female. This suggests that men tend to trade in a riskier way than women. The study also found that professional trading desks in the City of London were approximately 95% male and 5% female, and that their total returns would be improved if the gender ratio among staff was made more equal. The study also went on to speculate that market crashes would be less severe if trading desks were more equally balanced by gender, but without producing any direct evidence of this.
Women’s Investment Clubs
The American National Association of Investors Corporation conducted a comparative study of the returns of women’s investment clubs against men’s investment clubs in the U.S.A. over a fifteen-year period, between 1980 and 1995. They found that not only did the all-women clubs produce slightly higher average annual returns (13% against 12.3% for the all-men clubs), they also outperformed annually in nine of the fifteen years surveyed.
So, what conclusions can we draw from this evidence? The first thing to note is that while it tends to point in the same direction, it would be better to have wider-ranging studies with more sampling. Access to more recent account data from Forex brokers would provide an interesting window into gender differentials. However, there is enough here to conclude that on average, women trade slightly more profitably than men. How do they do it? By being more cautious, trading less, and by being more risk averse. Women also tend to have more realistic self-assessment than men, for example by being less confident than men that they will be able to make a profit trading. As this is only average, aggregated behavior, this means that almost as many women as men can learn something from this.
The most important lesson to be learned is that the primary root causes of unprofitable trading are overconfidence and indecision. It is great to have confidence that you will become a profitable trader, but you need to be realistic about the fact that you will almost certainly have to work through a period of hard struggle to get there. The simplicity of trading, coupled with the fact that there are a few well-known and simple profitable edges, makes it easy to overestimate your probability of profitability. For most new traders, this is the first challenge. The second challenge usually comes later, as traders begin to develop good instincts, but too often second guess those instincts after entering a trade, ruining the chance of profitability through hasty and emotionally driven over-management of trades.