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Let’s start this with a little test: Picture a typical stock trader in your mind. What do you see? Most likely, you see an image of a white male dressed in a sharp suit. The conjuring of that image is understandable, of course, because it has been instilled in most of us for many years. Indeed, if you’d like to do another test, put the terms “stockbroker” or “stock trader” into a Google image search or even an AI image creator, and they’ll often throw out the same clichéd depiction.
Yet, we know the financial arena is a lot more diverse than the stereotype. Moreover, we are moving away from the concept of financial trading being somewhat synonymous with machismo and testosterone. In fact, there is growing evidence that the typical trader might not even be male at all, particularly in Australia. A 2021 study from AUSIEX showed that Australian women began to outnumber men in financial trading accounts for the first time. Admittedly, men still outnumber women in most trading fields, but the growth has been considerable.
Stats Show Women Are Better Investors
Nonetheless, there is an argument that not only are women getting into trading at a higher rate than men, but they may be better at it. An article in Forbes from 2021 was fairly unequivocal on this. Titled “Why Women Are Better Investors,” it cited a Fidelity report that showed women consistently outperforming men in trading and investment. One of the key findings in that report was that men trade 45% more, i.e., with more frequency, than women, but that may lead to performing trades with more risk and with less research.
Consistently across all reports, the fact that women tend to research more was a key driver of their success. If you are new to trading, you’ll want to start by educating yourself on the fundamentals. This means getting a 101 on basics: How to trade indices online? What is a CFD? How to use Technical Analysis. What are Bollinger Bands? After that, it comes down to analysing individual stocks, currencies, cryptocurrencies, commodities, market sentiment, and so on.
A Patience Approach During Market Turmoil
One of the more interesting studies was published in the Financial Times in 2020. It noted that during the market turmoil caused by the COVID-19 pandemic (a huge driver of the online retail trading boom in Australia and elsewhere), women tended to take more risks than men. The study showed that men were 56% more likely to reduce the risk of their held assets than women. But at this juncture, taking the risk was worth it.
The above example about women taking more risks than men is something of an outlier, but there is also a caveat. Women were happier to take a long-term approach, and they won out by holding their nerve as financial markets boomed during the pandemic. The point, as such, is that women tend not to “overtrade,” being more content to let the market forces do their thing. For instance, it’s almost an uncontested rule that stock market indices will rise over time – look at the performance of the ASX200 over the last 25 years. The same goes for stock market indices in every advanced economy. There may be bumps on the road, but the long-term trend is upwards.
Women Traded Better Over 10-Year Period
We mentioned the concept of “overtrading” above, and that, again, is key to the analysis brought by these reports. A huge study in the United States tracked 5.2 million accounts from 2011 to 2020 and found that women were more profitable than men by an average of 40 basis points. Again, the report looked at those qualities of being patient, cautious, and disciplined. Sometimes, the best way to trade is to do nothing, and men are often guilty of overtrading, constantly trying to tweak a trade or aim for a eureka moment. Women are more likely to use sensible strategies like dollar cost averaging, i.e., putting a fixed amount into an investment each month or week and taking a long-term approach to it paying off.
Of course, none of this is meant to suggest that women don’t take risks in financial trades. They certainly do. However, when looking at the overall propensity toward risk and long-term strategies, there is a difference between the sexes. And guess what? This stuff matters, and it goes beyond the success of an individual woman’s investment portfolio. Other studies have argued that getting more women into financial trading could be beneficial for the broader economy, even going as far as preventing situations like the 2008 Global Financial Crisis.
Conclusion: Seeing the Bigger Picture
In the end, successful trading and investing is up to the individual’s experience, risk management, and intuition. There can be good and bad female traders, just as there can be good and bad male traders. And trading attracts a range of people with different world views. Yet, the data continuously shows that women outperform men in the modern trading and investment arena. They tend to do more research on their trades, are more willing to be patient, and, under certain circumstances, will take fewer risks. But perhaps women’s penchant for seeing the bigger picture and not getting bogged down on trying to “catch a falling knife” by overtrading is the clincher. As more and more women become professional traders, it will be interesting to see how this influence shapes the financial markets as a whole.