The general investment industry including the financial market has generally been male-dominated. In the last five decades, there has been an increase in the number of female traders and this has created a debate on whether women trade differently or trade better than men. There has been a lot of speculations on the female approach to trading and some studies have pointed out some gender characteristics that affect trading performance.
Men are over confident
A study by the University of California in the late 1990s (’Boys Will Be Boys: Gender, Overconfidence, and Common Stock Investment ‘by University of California, Davis, and University of California, Berkeley academics Brad Barber and Terrance Odean) found out that men trade more frequently than women (45% higher) but gather a lesser return per annum (2.65% lesser).
The higher frequency of trading by men was credited to a stronger belief in their market assessment. This stronger belief led to overconfidence and prompted them to act impulsively and often undertake greater risks resulting in loss of return.
On the other hand, women hold onto their positions for a longer duration and are traded less frequently. This also keeps the costs down at the end of the day if you consider the brokerage fees and settlement costs. They are more cautious and take a longer time to get convinced in trade, often resulting in greater returns.
Male ego plays a big role
Men are more adamant about their opinions and assessments even if they are wrong. This often results in holding on to losing trades for a longer duration than necessary. Often, they chase losses hoping for the trades to turn. Men are also less likely to admit their mistakes about trade and listen to others’ advice. This stubborn attitude can lead to misinformation, impulsive trading, and finally loss in trade and returns.
On the other hand, women are more likely to ask questions to clear their doubts. They are also more willing to admit their mistake, seek advice and rectify their action. These traits help them to cut losses better and trade according to a strategy resulting in a higher return. In day trading, more often than once cutting losses become more important than making a profit or is the only profit.
Handling pressure makes a difference
Women, in general, are more stable under pressure than men and this is reflected in the trading pattern too. They panic less in volatile market conditions and hold on to positions much longer. Interestingly it is also seen that a market with more women traders is more stable.
Men are more likely to succumb to pressure. This is also reflected in a volatile market or market drops, when men panic more and quickly sells positions, failing to see the larger picture.
Women avoid risks
One of the basic principles of trading is to conserve capital. Women naturally follow this rule as they are more averse to risk than men. This is exhibited by the fact that they trade conservatively and less often. They are also more prone to maintaining a smaller or more concentrated portfolio than men. This enables them to watch or manage their assets in a better manner.
However, towing a conservative line can be a double-edged sword too as it might generate lower returns, and one needs to be aggressive when the opportunities are right.
Women have to prove themselves
Trading especially day trading is still a male-dominated area. Though the number of women traders has increased considerably, they are still a minority. But this inequity has also resulted in a stronger determination to succeed. They are more likely to dedicate more time to practice their strategy. They are also more prone to advice from peers and even a mentor.
On the contrary, the male sentiment in the profession is largely driven by money and adrenaline rush that is also propelled by the media representation of the profession. This is often no match for the female desire to excel in a male-dominated profession.
Men are more competitive, adventurous, and risk-taking in nature. These aspects are important in a business but while continuing the trade as a profession, these sometimes can be a hindrance. Day trading calls for an analytical mind and a lot of patience.
Women naturally possess both the qualities and in addition their adversity to risk often offers a stabilizing impact on money markets. While an excess of any traits may prove to be non-profitable, a balance in strategy is required to make a profit and long-term gains.