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Are women better traders?

Jul 21 2017
By
Jonathan Smith

 The age-old gender inequality is not going away fast, despite the deliberate attempts to make companies give equal pay and the requirements that an X number of women sit on the company board.

 

The financial sector is one fine example of gender inequality in terms of numbers, at least. Probably in  terms of pay, as well. It is a known fact that men far outnumber women as institutional traders – a study from 2012 found that in the UK and US the trading desks are 95% male and 5% female on average.

 

The story with retail traders is pretty much the same – most retail traders are men, though there too the numbers are changing. For example, trading website FinTrader, quoted by StocksToTrade.com, says that now 25% of its traders are women, up from none about 20 years ago. A large US internet brokerage firm said that in 1999 barely 12% of its clients were women. Next year the number rose to 19%. So it seems that things are slowly changing.

 

Yet, who makes a better trader – men or women? There is plenty of data supporting either side, but we will start with the ladies.

 

Lex van Dam, a former Goldman Sachs trader and a host of the BBC series, Million Dollar Traders, has told Forbes that “Women have a much higher sense of risk control than men and it can help avoid many of the disasters that risk taking by a male dominated trading environment has caused over the years.”

 

His claim is supported by studies, showing just that. There is, for example, the research done by Financial Skills, a trading profiling company, that suggests that women are far better than men. “We found that men take more risk than women,” said Financial Skills COO David Hesketh, quoted by the site Efinancialcareers. “That would be fine if they also made more money – but they don’t.”

 

Besides, women are more inclined to admit a loss and cut it, while men hatе to admit they are wrong and this often ends in much bigger losses. Or as StocksToTrade aptly puts it “Women can say “No” more easily than men. Sometimes the best trades are those that are not taken”.

 

There is also the fact that women are more inclined to think carefully, “read the manual” first and ask questions, if they don't understand something, while men are prone to jump in head first. Women are more strict and tend to adhere to a strategy more so than men and this also makes them better traders.

 

Now, there is another popular claim, that can be somewhat contentious: women are better in a crisis and handle their emotions better and female traders are less likely to panic. The jury is out on this one – it is known that women are generally more emotional than men.

 

Financial Skills' study has also found that men were not only less profitable than women, but also placed higher volume of trades, thus generating higher brokerage fees and settlement costs. “Interestingly, the women also traded fewer times than the men.  In a world where every cost matters, reducing a bank’s brokerage costs would be a helpful contribution,” said Hesketh. “The data suggests that if you choose to employ men over women, you will make less money using more capital, you will have higher transaction costs and you will need a more robust risk and compliance team,” says Hesketh.

 

Last, but not least: statistics also are in favor of women. A study by the University of California of 35,000 brokerage accounts found that women make higher returns than men, by an average of 1.5%.

 

TAGS: women  traders 
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