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Does gender make a difference for traders

Discover why female investors often outperform male investors and how inherent gendered traits can influence your success.

Reading time: 8 minutes

Trading level: Beginner


Source: Shutterstock

There are some inherent fixed traits that you possess that you can’t change. You can’t change your age or gain the support of your partner or spouse if they’re not as excited about trading as you are. You don’t have a lot of control over your personality either. These fixed attributes can create a nagging sense of doubt in relation to your possible success as a trader - so wouldn’t it be great to know whether these aspects were actually an impediment?

To be an exceptional trader you need to prove to yourself, beyond a shadow of a doubt, that whatever your inherent traits, you’ll be able to become successful in the markets.

This is especially true in the case of gender.

There are marked differences between how each gender tends to invest, and this can have an impact on the results derived, so let’s delve into this in more detail.

Only 26% of American women get involved with investing in the stockmarket, and they tend to invest less aggressively1 than men. However, many studies support the principle that women actually outperform2 their male counterparts3. Yet, despite these facts, only 9% of women think they make better investors than men.

With this in mind, it’s a concern that so many women doubt their own money management capabilities in the financial markets.

These concerns about financial matters seep into more areas than just the stockmarket. Based on the data of a March 2019 study that spanned 11 countries, Jodie Gunzberg from SPGlobal has formed some interesting insights. In both the US and Canada, fewer women feel that they are in “excellent” or “good” financial shape than their male counterparts. If faced with a financial setback (like unemployment), 22 percent of American women say they would be immediately unable to afford their current lifestyle. This is nearly double the share of American men (13%).

Gunzberg speculates that this “may be a key reason that only 26 percent of American women invest in the stock market, despite 41 percent of these same women viewing the market positively. Even if the market offers the potential for economic prosperity, women are generally in less of a secure position to take the risks associated with investing.”

Hormones and Testosterone

Scanning techniques have revealed significant physiological differences between the male and female brain. Those differences are present from the time we are born. It is important to be aware how this can enhance or detract from your performance as a trader.

Let’s have a look at the role of hormones and testosterone.

Professor James Dabbs of Georgia State University measured the testosterone levels of a variety of males in different fields. He reported that the superior achievers in any endeavour had higher testosterone levels than lower achievers. In addition, the thrill of achievement actually causes more testosterone to be produced. There is also a correlation between heightened testosterone levels and signs of aggression.

Based on these findings, high-achieving males in the trading field presumably have heightened testosterone levels. However, the study suggests that to maintain positive results, high achievers probably need to find a way to dissipate the effects of testosterone on their behaviour.

Just because males tend to have greater testosterone levels doesn’t actually mean they’re better traders. Multiple studies suggest that women generate a superior return on their investments.

When a man’s brain is in a resting state, 70% of its activity is shut down. Continual brain stimulation is an uncomfortable state for a man. This implies that men can mentally index their problems and put them on hold. To obtain peak effectiveness, men need time to down regulate. Men—take a break from trading from time to time to give your brain a chance to take a breather. You’ll trade much more effectively using this method, instead of subjecting yourself to the constant stimulation of the markets.

In a relaxed state, a woman’s brain still functions at 90% of its usual activity level. This shows that women are more likely to be processing information continually. According to the research, females often have difficulty putting their problems on hold and often need to talk through a situation in order to find a solution. Female traders may have a greater requirement to discuss their wins and losses with a friend. Take these needs into account and you’ll have an easier time as a trader, regardless of your gender.

Confidence in Decisions

There is a difference in the way each gender processes the confidence they have in their trading decisions.

Using account data for over 35,000 households from a large US discount brokerage firm, Brad Barber and Terrance Odean analysed the common stock investments of men and women. Men traded 45% more but earned 1.4 % per annum less in comparison to females. These differences were more pronounced between single men and single women. Single men traded 67% more than single women and earned 2.3% per annum less. The researchers attribute these results primarily to the negative effects of overconfidence and overtrading.

This finding of females outperforming their male counterparts has been duplicated by Fidelity Investments in a demographically representative US sample of 2995 adults. Fidelity Client data shows that on average, women performed better than men by 40 basis points, or 0.4 percent. This difference has a significant impact over time.

"The good news is many women are putting themselves in the financial driver's seat, taking positive steps to save and invest effectively for their future," said Kathleen Murphy, president of personal investing at Fidelity. "But there are still many who need to do more. The reality is that saving alone is not enough to even keep pace with inflation, so if you're not investing, you're likely losing money. Taking the next step to ensure that savings are invested properly and generating growth is critical to helping women progress toward their financial goals and live the lives they deserve."

Portfolio Turnover

Barber and Odean’s studies show that the more a portfolio is turned over each year, the worse the ultimate performance. For example, when a portfolio is turned over more than 200% a year, the average annual net return trails the market index by 10.3%. In a study of 78,000 households, women turned over their portfolios about 53% annually and men turned over their portfolios 77% annually.

The research suggests that when feedback is unequivocal and immediately available, women are just as confident in their own abilities as men. It was found, however, that “when such feedback is absent or ambiguous, women seem to have lower opinions of their abilities and often underestimate [their trading performance] relative to men.”

Feedback in the stock market is ambiguous. For this reason, women may be more inclined to wait for the perfect set-up before investing. This could at least partially account for their more moderate trading levels in comparison to males, yet their higher level of success.

Fund Management Performance

There is evidence that females and males differ in their appetite for risk and the way they manage assets during periods of downturn. However, the good news is that study after study backs that female-controlled businesses outperform male-controlled businesses.

This effect of females outperforming their male counterparts permeates to the hedge fund field as well. In the first two months of 2017, hedge funds owned or managed by women returned 3.65%, significantly outperforming the overall hedge fund industry, which returned 2.23% over the same period, according to Hedge Fund Research (HFR).

Investments managed by women during 2022’s market drawdown fared better than assets managed by male counterparts. The analysis examined returns from 80 investment portfolios across 73 asset managers.

Interestingly, the evidence also suggests that in times of stress, female fund managers take less risk than male fund managers, but they achieve the same performance. So yes, females tend to play it safe during periods of negative market sentiment, but this pays off as their risk-adjusted performance is the same.

Authors Gehde-Trapp and Klingler found that the male managers took on “significantly more” total fund risk when sentiment was bad. This risk appetite did not derive commensurate positive rewards. “We find no significant relation between the higher risk due to bad sentiment and performance. Hence, fund investors do not receive a compensation for the higher risk that (male) managers take on,” the authors wrote.

What does all this mean?

Ladies - Recognise that the data is on your side, and you have every reason to expect positive outcomes in your trading journey.

As a female, realise that you do have a worthy place in this trading game. Despite the possible stereotype that trading could be considered a male domain, the data backs the fact that in most studies, females outperform their male counterparts. Females tend to outperform in almost every metric of effectiveness, including actual performance, in evaluating and taking appropriate risks, and in the turnover of their portfolios.

Even if you feel moments of self-doubt, don’t let your gender prevent you from exploring trading. Trading the financial markets may just allow you to capitalise on your ability to react calmly and without ego, and to prepare fully prior to entry into new positions.

Rely on the support offered to you by other traders and if you need to discuss your positions, make sure you find appropriate people to act as a sounding board. Also, remember to schedule in some downtime, so that you can honour your own requirement for recovery. Trading is a high-performance endeavour and recognising the cognitive load required is essential, regardless of your gender.

Louise Bedford is a full-time private trader and author of The Secret of Writing Options, The Secret of Candlestick Charting, Charting Secrets, Trading Secrets and Let The Trade Wins Flow.

This information has been prepared by IG, a trading name of IG Australia Pty Ltd. In addition to the disclaimer below, the material on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients.

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