Electronic trading has changed the industry. Gone are the days of crowded open outcry trading floors, and men in rolled-sleeve shirts shouting market prices across a noisy office and buy/sell orders down an oversized telephone. These have all but been replaced with sophisticated technology that monitors prices and executes trades within split seconds, at the click of a button. The vast retail trader’s community can easily access the online trading world regardless of the geographical location due to advancement in technology.
Brokers have made use of the technology to offer their clients easy access to markets through their online platforms, bypassing the need for professional assistance. Now, almost anyone, almost anywhere, can open an account and place trades, providing they have a computing device that can access the internet. Most importantly you can easily trade the market with very minimum deposit and make a sequential profit by using the leverage efficiently.
This has provided more opportunities for women to get into trading, and the results are revealing.
It is well documented that the trading industry is still very much dominated by men, with just one female in every ten online traders in the UK and many more reports of gender imbalance in the professional trading sector. However, does this necessarily mean that men are better traders than women? Research would suggest that the contrary could be true: as more women enter the arena, growing evidence is mounting that indicates women could be the better traders.
An analysis of the evidence
In their 2001 paper, behavioral economists Terrance Odean and Brad Barber found that men traded almost twice as much as women and that this aggressive trading behavior led them to drop 2.65% in net returns per year, compared with just a 1.76% drop demonstrated by women.
Peter Swan, a professor of Finance at UNSW Sydney, and his colleagues, Lu and Westerholm, conducted an extensive study over a 17 year period on traders from Finland which thoroughly evaluated the trading performance of men and women. Again, the study demonstrated that men traded more actively, but that women were more successful in their trading strategies, adopting a calmer approach to trading, and picking up on movement patterns in the markets better than men. The 2017 paper asserts that women demonstrate greater trading intuition. Although they suffered short-term losses, buying when prices were falling, they made substantial and superior profits over the longer term.
This notion is further supported by research carried out by a financial profiling company, Financial Skills. The study analyzed data collected from 326 investment bank interns that traded on the Financial Skills simulation software and found that women traded less and outperformed men.
A study conducted by SigFig, an automated portfolio tracker, found that women returned 12% more than men and that women were 25% less likely to lose money on trades than men.
In their 2001 paper, behavioral economists Terrance Odean and Brad Barber found that men traded almost twice as much as women and that this aggressive trading behavior led them to drop 2.65% in net returns per year, compared with just a 1.76% drop demonstrated by women.
Peter Swan, a professor of Finance at UNSW Sydney, and his colleagues, Lu and Westerholm, conducted an extensive study over a 17 year period on traders from Finland which thoroughly evaluated the trading performance of men and women. Again, the study demonstrated that men traded more actively, but that women were more successful in their trading strategies, adopting a calmer approach to trading, and picking up on movement patterns in the markets better than men. The 2017 paper asserts that women demonstrate greater trading intuition. Although they suffered short-term losses, buying when prices were falling, they made substantial and superior profits over the longer term.
This notion is further supported by research carried out by a financial profiling company, Financial Skills. The study analyzed data collected from 326 investment bank interns that traded on the Financial Skills simulation software and found that women traded less and outperformed men.
A study conducted by SigFig, an automated portfolio tracker, found that women returned 12% more than men and that women were 25% less likely to lose money on trades than men.
Female trading preferences
Much of the evidence suggests that overall, women take less risks in their trading strategy as they are more likely to take their time and not react hastily to price fluctuations. Indeed, there is much research that supports the notion that women are more risk averse than men.
That said, they have been shown to demonstrate a preference for trading riskier financial instruments. In their report ‘The Modern Trader‘, Brokernotes.co profiled traders using the data from more than half a million website visitors. They found that Forex trading, day trading, and CFD trading were amongst the trading styles favored by women. They also found that nearly 42% of women classed themselves as experienced – a high proportion for such an under-represented gender.
Much of the evidence suggests that overall, women take less risks in their trading strategy as they are more likely to take their time and not react hastily to price fluctuations. Indeed, there is much research that supports the notion that women are more risk averse than men.
That said, they have been shown to demonstrate a preference for trading riskier financial instruments. In their report ‘The Modern Trader‘, Brokernotes.co profiled traders using the data from more than half a million website visitors. They found that Forex trading, day trading, and CFD trading were amongst the trading styles favored by women. They also found that nearly 42% of women classed themselves as experienced – a high proportion for such an under-represented gender.
Women in trading
A 2016 study by Adams, Barber and Odean attempted to answer why only 18% Chartered Financial Analyst (CFA) members were women. Their survey showed that the female members were more achievement driven, and less motivated by traditional family life. Their study suggests that fewer women may be found in demanding professional financial roles as time obligations outside of work still tend to be greater for women.
Although there may be some truth in that for professional traders, many private traders are able to conduct trades around their commitments. Jane, who was featured in a BBC documentary about trading, worked as a nurse and looked after her three children, but despite being far from the stereotypical City trader, is a prime example of how women are entering the trading arena. Online platforms that can be accessed from mobile phones have facilitated the ability for traders to engage in the activity around their other tasks, increasing the appeal for women.
A 2016 study by Adams, Barber and Odean attempted to answer why only 18% Chartered Financial Analyst (CFA) members were women. Their survey showed that the female members were more achievement driven, and less motivated by traditional family life. Their study suggests that fewer women may be found in demanding professional financial roles as time obligations outside of work still tend to be greater for women.
Although there may be some truth in that for professional traders, many private traders are able to conduct trades around their commitments. Jane, who was featured in a BBC documentary about trading, worked as a nurse and looked after her three children, but despite being far from the stereotypical City trader, is a prime example of how women are entering the trading arena. Online platforms that can be accessed from mobile phones have facilitated the ability for traders to engage in the activity around their other tasks, increasing the appeal for women.
Primary conclusions regarding female traders
Some of the primary reasons that have been observed in many of these studies are:
Women appear to have a calmer approach to trading than men and are not as easily influenced by the hype and euphoria of fast moving markets.
Women are less inclined towards risk taking, preferring to trade less and trade more carefully. Men, on the other hand, often trade aggressively, which can be detrimental to their performance and incur higher brokerage costs – adding to their losses.
Women are more intuitive with their trades and are better at picking up movement trends and market patterns.
Some of the leading hedge fund management companies are trying to redress the balance between men and women in their prominent roles and are actively seeking women to join the company at an early age. It is certainly clear from the wealth of research into this area why firms would want to recruit more women onto their teams.
Of course, there are always issues with regards to definitively declaring that one gender is superior to the other. However, there are so many studies that support the case for women being the better traders, and very few in comparison to support the opposite conclusion. It is possible that this is due in part to our pre historic hard-wiring, but there are clearly lessons that can be learned by everyone. Anyone involved in Forex / CFD and other financial instruments trading can benefit from understanding why women repeatedly come out on top in such studies and try to adopt a similar approach.
Some of the primary reasons that have been observed in many of these studies are:
Women appear to have a calmer approach to trading than men and are not as easily influenced by the hype and euphoria of fast moving markets.
Women are less inclined towards risk taking, preferring to trade less and trade more carefully. Men, on the other hand, often trade aggressively, which can be detrimental to their performance and incur higher brokerage costs – adding to their losses.
Women are more intuitive with their trades and are better at picking up movement trends and market patterns.
Some of the leading hedge fund management companies are trying to redress the balance between men and women in their prominent roles and are actively seeking women to join the company at an early age. It is certainly clear from the wealth of research into this area why firms would want to recruit more women onto their teams.
Of course, there are always issues with regards to definitively declaring that one gender is superior to the other. However, there are so many studies that support the case for women being the better traders, and very few in comparison to support the opposite conclusion. It is possible that this is due in part to our pre historic hard-wiring, but there are clearly lessons that can be learned by everyone. Anyone involved in Forex / CFD and other financial instruments trading can benefit from understanding why women repeatedly come out on top in such studies and try to adopt a similar approach.
No comments:
Post a Comment