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When it comes to the financial markets, men and women sometimes do things differently. That men and women retain distinctive traits and workstyles certainly isn’t unique to finance, but extends into many other sectors of the economy. As more women have entered the financial markets – an industry that is traditionally dominated by men – we are beginning to see how different approaches to trading and investing may lead to success. After all, we spend a lot of time dispelling myths about a “holy grail” in trading, teaching students that success can be achieved in many ways depending on a trader’s abilities, psychology and amount of time they can devote to the markets. Why shouldn’t this same approach be used to understand how men and women may differ in their trading strategy?

Now, just because men and women sometimes do things differently doesn’t justify sweeping generalizations about what makes men better at trading or vice-versa. Not only are these type of arguments pointless and counter-productive, they don’t teach us anything about what makes one a good trader in the first place. After all, nearly everyone in the financial markets has room for improvement. Therefore, this gender-based approach to understanding traders’ psychology is meant to help you develop new ideas and approaches to trading that will lead you to more success.

What the Research Says

The fields of psychology and behavioural finance show that, in general, men are more prone to overconfidence than women and as a result are more likely to trade excessively.[1] Some studies have shown that men trade 45% more than women. While this may increase their chances of success, it may also magnify their losses. These same studies show that excessive trading, especially when it is rooted in overconfidence, leads to lower returns.[2]

A 2013 study of committed couples conducted by Fidelity Investments also showed that men have a much higher risk tolerance than women. The study showed that 15% of men were willing to invest a large sum of money to achieve a potentially higher return, even if it exposed them to the possibility of losing some or all of the initial investment. By comparison, only 4% of women said they would do the same.[3]

However, this doesn’t mean women aren’t willing to take risks. A separate study by BlackRock Inc., the world’s largest asset manager, found that women are willing to increase risk if it meant higher returns. The same study also showed that women allocate a bigger portion of their portfolio to cash.[4]

In general, women tend to be more concerned about losing principal. According to a study conducted by Merrill Lynch, more than half of the women surveyed said they feared losing their principal investment and more than a third said they feared not having access to cash. However, the same research also stated the following:

“Gender differences among investors tend to be overstated. In fact the ways in which men and women approach their financial lives are often strikingly similar. Understanding who they are as investors can help women better focus on ways to successfully work toward their personal goals.”[5]

What Women Traders Can Learn From Men

Be more confident in your abilities
Confidence plays a huge role in life and in trading. In general, men tend to exert more of it in the financial markets. While this isn’t always a good thing when it leads to overconfidence, trusting in your abilities is extremely important when you’re in the trenches. Women can build their confidence by seeking education and training in the financial markets.[6] By learning as much as they can about the markets, they will become much more confident in their ability to execute profitable trades.

Focus on opportunity
Risk aversion is important in finance, but too much of it can leave you on the outs of some great opportunities. After all, if there was no benefit to trading, you would keep your money stowed away in a savings account. The good news is there are a lot of ways you can make big trades while limiting your downside. Tools like stop-loss, take-profit and risk-reward ratios may help you capitalize on the opportunity of the market without overstepping your risk threshold.
Success at trading requires that you take the bulls by the horns. By adopting a more assertive approach to trading, you will see more opportunities and develop an “any-means-necessary” attitude to success. Whether you like it or not, trading is a zero-sum game. There are winners and there are losers. Your attitude needs to mirror that reality to some degree.

What Men Traders Can Learn From Women

Ask for advice
We all know men don’t like to ask for directions when they’re lost. Are we really surprised that they don’t ask for help in trading? Doing this can not only limit your personal development, but cause you to blow out your account. Don’t forget to ask for advice. We all need it at some point.

Minimize risk
Although each trade carries with it a certain sense of risk, there are steps you can take to minimize your risk exposure. Trading smaller positions and allocating a smaller portion of your portfolio to individual trades can greatly reduce your risk. Here, men can learn a lot from the more risk-averse nature of women traders. So keep the testosterone in check and don’t get sucked into the “all-or-nothing” mindset.[7]

Limit your trading activity
We learned in the previous section that men are more likely to trade excessively as a result of overconfidence. Here, we highly recommend that men be more critical of their own abilities and realize they probably aren’t as good as they think they are. If you’re not making consistent profit across a range of assets in your portfolio, you should consider reevaluating your approach with a fine-toothed comb, something women traders are extremely skilled at. This almost always entails trading less frequently than you do now.[8]

Men and women may have slightly different ways of doing things, but that doesn’t mean those difference are set in stone. In this respect, both sexes can learn a lot from each other in becoming more well-rounded traders.

[1] Martin Swell (April 2010). Behavioural Finance. Behavioulfinance.net.

[2] Martin Swell (April 2010). Behavioural Finance. Behavioulfinance.net.

[3] Georgette Jasen (May 3, 2015). “Male Investors vs. Female Investors.” The Wall Street Journal.

[4] Georgette Jasen (May 3, 2015). “Male Investors vs. Female Investors.” The Wall Street Journal.

[5] Michael Liersch (Fall 2014). Women and Investing: A Behavioral Finance Perspective. Merrill Lynch.

[6] Kira Brecht (August 20, 2015). “Venus & Mars? Men and Women Traders Can Teach Each Other.” TD Ameritrade.

[7] Kira Brecht (August 20, 2015). “Venus & Mars? Men and Women Traders Can Teach Each Other.” TD Ameritrade.

[8] Kira Brecht (August 20, 2015). “Venus & Mars? Men and Women Traders Can Teach Each Other.” TD Ameritrade.

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