So let’s get controversial! It’s 2019, which means it’s a little out of touch to claim that either of the genders outperforms the other in a given profession. Having said that, it is, indeed, Women’s Day, 2019. And frankly, it’s high time a woman’s gender be recognized as a strength in the professional world rather than a weakness! Have you been testing your strategy on a Demo Account? Sign up now and begin practicing!
According to statistical evidence collected by Warwick Business School, women traders outperform men by 1.8%, despite trading less than them. So while women statistically trade “less” than men, why is it that they seem to be trading “better”, or rather “smarter” than them?
Research by the University of Leicester found that hormones (yes, hormones!), as well as societal factors, have a significant impact on how men and women approach the financial markets.
These differing trading psychologies are what cause the discrepancies in success rates. And we’ve boiled it down to 4 particular areas where a woman’s trading psychology will give her an edge over her male counterpart.
A female trader is content in recognizing that her knowledge may be lacking on a certain topic. This means she will likely take the necessary steps to research, learn and practice her strategy before entering the market with real capital.
On the other hand, a male trader is more likely to fall victim to an overambitious ego. Men tend to be more impulsive with their decisions and overconfident in their abilities. This can often lead them to underestimate the amount of dedication and preparation it takes to enter the market, setting them up for a difficult learning curve that’s likely paved with losses.
Following on from the above, a woman’s preparation usually means that she has become well-versed with a small number of instruments that she knows how to trade efficiently. This means she doesn’t over-trade, or take superfluous risks without knowing how each instrument behaves.
Contrarily, male investors are more inclined towards risky behavior. Physiologically, testosterone will play its part here. Men tend to inherently enjoy the highs of plunging into the unknown and attempting to take advantage of every opportunity possible. This typically causes them to trade too much, exposing them from every angle to risks that are outside their control.
A woman will usually have less of an ego than her male counterpart. That, combined with her preparation and calculation of risk, means she’s better at handling losses. A female investor is more likely to look at losses with an investigative lens rather than a defensive one, searching for ways to learn from them and avoid repeating them.
Conversely, losses tend to hit men much harder. A man will usually see his profits as a reflection of his capabilities as a businessman. Unfortunately, this means losses tend to provoke a more emotional response rather than an analytical one. Instead of using losses to their advantage, it’s not uncommon to find men trying to avenge a failure by opening up more positions and taking even higher risks.
Because of a woman’s more calculated approach to the market, she’s more likely to keep a tight hold on her profits. From research to implementation, a female investor has less of an emotional trading psychology. This means that profits will not send her into a state of euphoria, making her more likely to save them rather than spend them.
Men, on the other hand, may fall victim to the emotional roller-coaster that is trading. Their testosterone kicks in once again when high profits inflate their ego, plaguing them with the urge to blow the money in their quest for more wins.
The main culprit in all of this, as it always seems to be, is trading through the eyes of your ego. Yes, the male trading style can be more risky, especially when combined with inexperience. But it doesn’t mean that being emotional, passionate or confident in your abilities is wrong.
If we are to take these generalizations as gospel, then we must aspire to get the best of both worlds.
We must channel our passion and confidence to drive us towards research and preparation. We must use our losses to perfect our strategies, and learn to separate our egos from our equity.
At the end of the day, trading is a journey with many ups and downs. Male or female, trading newbie or vet, the more we can learn from our peers, the more well-rounded, responsible and successful we will become.