Are women better traders than men?

Are women better traders than men?
Written by:
Tsveta van Son
January 20, 2020

There’s little doubting the fact that the world of financial trading is a male-dominated industry. It’s said that women only make up five per cent of the traders in the world and in America fewer than a tenth of all fund managers are female.

The gender employment gap, therefore, is pretty stark. But is it healthy? Are there actually qualities that women could bring to the world of trading that would improve this industry? Might it actually be the case that, despite the gender balance, women are indeed better suited to this sort of role?

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A number of studies in recent years have suggested that it is indeed the case that not only would it help to have more women involved in trading, but that they might well display key character traits that make them better suited to this activity.

In the 1990s, two academics from the University of California studied the investment habits of more than 35,000 households. In conclusion, their research found that men tended to be more confident in their ability to trade, which led them to do so 45 per cent more frequently than women. However, this confidence and propensity to trade more often led to them facing higher costs and making more mistakes than their cool-headed female counterparts and their annual returns were worth 1.4 per cent less.

Inspired by this, financial adviser Hargreaves Lansdown decided to perform its own study to repeat the test. Over three years, between August 2014 and August 2017, its female clients performed better than men by an average of 0.81 per cent. If that trend continued over 30 years, we could expect women to end up with a portfolio worth 25 per cent more.

It found that:

  • women were more likely to hold a diverse portfolio and avoid taking on too much risk with one asset
  • women were less likely to choose risky investments in the first place
  • women traded less frequently, following a ‘buy and hold’ strategy

Former Rothschild banker Emma Sinclair explored the issue further in an article for The Telegraph. Initially skeptical, she found that studies such as those above provided evidence for the following five assertions, which one trade platform offered as explanation for women being better traders than men:

  1. Men hate to be wrong and take longer to admit a mistake
  2. Women are better in a crisis and less inclined to panic at an emotional moment (in spite of the stereotype)
  3. Women find it easier to say ‘no’ and therefore ignore bad trades
  4. Women question things they are unsure of, understand the ‘rules of the game’ and stick to a strategy
  5. Women are more measured and less likely to jump in head first to a task they

All that puts women in a better position to be able to make informed choices based on the information they have available to them and have an organised approach, with a strategy that, for example, takes into account important details such as the optimum forex trading hours in the UK based on time zones etc.

Whether you think the ‘battles of the sexes’ is hackneyed or not, the evidence is pretty compelling that the world of trading would at least benefit from much greater female involvement. Clearly these studies don’t show that every woman would make a better trader than every man, but they ought to make people sit up and take notice that the current gender imbalance is wrong from a business and economic perspective as well as a moral and ethical one.