Are women better traders than men? According to various studies, the answer is: Yes. Women typically make for better traders than men.
Similar studies have also concluded that older traders are typically better than their younger counterparts. An astute trader might ask themselves, “What makes these groups better traders?”
While men still make up the vast majority of financial professionals, the ranks of women are growing all the time. Some of this has to do with the general employment trend, of course, in that women are making up a larger and larger share of the workforce overall.
But is there something in the differences between the genders that actually makes it more likely that a woman will succeed in careers related to money, and, in particular, as traders?
Trading website FinTrader recently announced that they have seen an increase in the percentage of women, who are clients of their services, involved in trading and spreadbetting. And they posited that, although women still make up only 25% of their clientele, the women are actually on average better traders than the men.
Fact: Women Are Better Traders Than Men
The Fintrader article explained 5 possible reasons for the differences:
1. Men hate to be wrong, and they take longer to admit that they have made an error
2. Women are better in a crisis and less emotional; contrary to popular belief, female traders are more disciplined and less likely to panic
3. Women can more easily say, “no,” and sometimes the best trades are the ones not taken
4. Women read the manual, stick to a strategy, and question things that they don’t understand
5. Women think more carefully as opposed to jumping in head first – which men are prone to do
The definitive analysis on this subject was completed, in 2001, by behavioral economists Terrence Odean and Brad Barber, and published as “Boys Will Be Boys: Gender, Overconfidence, and Common Stock Investment.”
The researchers studied 35,000 accounts at a large discount brokerage company from 1991 through 1997. They determined that men trade 45% more frequently than women, and this over-trading contributes to a 2.65% reduction in net returns per year.
This hyperactive trading is attributed to men’s overconfidence in their abilities. Purely and simply, men trade more often because they have a false belief in their own abilities.
The reason for this is varied – part cultural, part psychological, or perhaps part biological. On the whole, though, women tend to be less over-confident than men, and therefore they trade less often, and this has been proven to be a good thing for profits.
A 6-year study published by FinTrader in 2011 confirms these findings, and added that women tend to quickly admit mistakes, ask for help, and cut losing trades, whereas men more frequently held on to losing trades, “hoping” that they will turn around.
The 2011 study also uncovered some surprising findings about older traders versus younger traders.
Far from avoiding risks, older traders tend to take risks just like their younger counterparts, but they also tend to “take the right ones, because they’re more organized, focused and very results-oriented.” says Vince Stanzione, author of the study.
These “silver surfers,” as Stanzione calls the over-55 set, are turning in performances a full 40% better than younger traders.
Stanzione’s study, covering the years 2005 through 2011, found that the youngest set of traders turned in the worst performance, in terms of profitability, broke their own trading rules the most often, and, surprisingly enough, failed to use social media and technology to their advantage.
The oldest trading group’s success is attributed to their keeping better records, spending sufficient time studying the industry, as well as learning new techniques and technologies, and using excellent money-management practices.
Older traders do not swing for the fences like younger traders do, and likewise they do not unnecessarily risk striking out. They take their base hits one after another, building their portfolios in a steady and measured manner.
Women do the same thing. Because they are less confident than men, they don’t enter a trade until their confidence in the trade is quite high. They don’t take the less-than-perfect setups as frequently as men do, so their winning percentage tends to be better.
So women are better traders than men, and older traders are better too. How can you use this information to improve your own trading? The most important idea is to take fewer trades, only the ones that have the highest probability of winning. Be able to admit that you were wrong quickly, and cut your losing trades as soon as you can. Stick to your trading plan religiously. And don’t hesitate to ask a woman what she thinks!!!