When a trading website recently declared that women make better traders than men, ex-Rothschild banker Emma Sinclair dismissed it as a wild claim. That is, until, a wealth of research convinced her otherwise.A financial trading website, Fintrader.net, recently said that it had seen an increase in the amount of women trading the financial markets and spreadbetting. Although still in the minority, apparently 25pc of the site’s clients are women, compared to virtually zero some 26 years ago. The website said: “Think like a woman to succeed in trading.”
I was instantly sceptical and dismissed the claim. I am inclined to agree that men often hate to be wrong (one of the site’s reasons that women are better than men at trading) – but that this is mostly demonstrated when driving around with a man who is lost and refusing to ask for directions, until the better part of half a tank of petrol has been spent.
The release listed five possible reasons why women generally do better at financial spread betting, those being:
– Men hate to be wrong and take longer to admit that they have made an error;
– Women are better in a crisis and less emotional because, contrary to popular belief, female traders are more disciplined and less likely to panic;
– Women can more easily say no and sometimes the best trades are the ones you do not make;
– Women read the manual, stick to a strategy and question things that they are uncertain of; and,
– finally, women are measured as opposed to jumping in head first – which men are apparently prone to doing.
I trade equities – and have done since I discovered a savings account my parents opened for me when I was four. They kindly deposited birthday money generously donated by relatives, which, by the time I got to university at 18, accumulated into a nice four-figure bank balance I could access without their permission.
Along with the student loans I took out, I began trading and did rather well – those trading statements being very useful appendices to my CV when I started to apply for jobs in the City . But I didn’t think gender played a part in my success.
And so I wondered: Were more women trading, were they trading more successfully than men and what have the changes been over the last decade? I asked the independent trading leader, E-Tradebut they were unable to offer any gender related statistics.
Then I remembered an article by Gary Belsky. 20 years ago he wrote a story for Money Magazine which I revisited – ‘ Why Women Can Be Smarter Than Men About Money ‘. The story detailed the five ways women, by their nature, tend to outperform men when the playing field is otherwise level.
On inspection, these were the same reasons listed by Fintrader. Perhaps I was too quick to judge. Now writing for Time.com, I spoke to Gary to get an update on whether, 20 years on, he still thinks women make better traders than men.
He does. And he points to the seminal piece of research on the topic by the distinguished behavioural economists Terrence Odean and Brad Barber. ‘ Boys Will Be Boys: Gender, Overconfidence and Commons Stock Investment .’
In their 2001 study, they analysed account data for more 35,000 households at a large discount brokerage between February 1991 to January 1997. They discovered that on average, men traded 45pc more frequently than women and that this hyperactive trading reduced their net returns by 2.65pc a year, compared to 1.72pc for women. Their explanation for the high levels of counterproductive trading in financial markets was overconfidence. Men trade more than women – and thereby reduce their returns.
In his book ‘ Why Smart People Make Big Money Mistakes and How to Correct Them ‘, Gary looked at the effect of emotions on decision making.
He told me that the less you do, the more likely you are as a trader to do well for a bunch of reasons. These include “some sociological, some cultural, some maybe biological. Women are more deliberate than men, and therefore less active as traders, which the research seems to pretty strongly suggest makes them better traders.”
The data is clear. The gender stereotype that women are less confident than men – or, as Belsky says, “that women are less overconfident than men” – is, for once, a useful trait. There is a strong argument that women, by their very nature, do indeed make better traders and better returns.
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