This article appeared in the July 2011 ASX Investor Update email newsletter. To subscribe to this newsletter please register with the MyASX section or visit the About MyASX page for past editions and more details.
Women may have an edge in risk aversion and fear of repeating mistakes.
By Jamie Leach, Pacific Wealth Creations
An age-old battle rages in the markets about who are better traders, men or women. While the finance sector at large strives for diversity, higher female representation at executive level and pay equality, the markets lag behind with female representation at less than 10%, according to recent Wall Street figures.
So is there a physical, psychological or physiological basis to a belief that trading is the domain of alpha males? First impressions would lead us to believe there must be a basis for the argument, a rational explanation for the high majority percentage of men. Yet many comprehensive studies have found no support for the argument that men make better traders than women. Indeed, the contrary may well be established.
There are two types of traders, professional and retail. Professional traders are often characterised by crass locker-room antics and the testosterone-filled trading floor pits of Wall Street or European exchanges. These pits are ear-shatteringly loud, brash, sweaty and electrically charged, with a take-no-prisoner mantra. One could argue that the tallest traders or those with the loudest voices - certainly the most exaggerated gestures - would attract the most attention from runners and thus land the best trades.
Another form of professional traders are those who maintain the trading desks of global investment banks and brokerage houses, such as Goldman Sachs, JPMorgan or Citigroup. In this environment, although still predominantly male in numbers, the ability to succeed has seen the playing field levelled and the physical characteristics largely removed. The ability to spot an opportunity and to click the button faster than another trader determines the level of career success.
The Margery Teller story
One example of female genius in the sharemarkets is Margery Teller. As a floor trader in the euro dollar pit of the Chicago Mercantile Exchange, she accounted for an estimated 10 per cent of all euro dollar trades in 2002. The exchange was so impressed; they offered financial incentives to other traders to take up the slack. Asked why she chose floor trading as a career, Margery said: "I'm just an idiot savant … it's the only thing I can do." It is rumored that her colleagues had so much faith in her abilities that they refused to take the floor if she was not present.
In 1984, a 17-year-old girl raised on a farm, Laura Pedersen, arrived on Wall Street, working casually at several firms before settling at Spear, Leeds and Kellogg (later acquired by Goldman Sachs). Because of her age and relative inexperience, she first took a job as a clerk, covering the traders during their breaks. Against her parents' wishes, Laura not only learnt the perils of the markets but also the financial world in which she operated. During four years at Spear, Leeds and Kellogg she reportedly made the firm in excess of $5 billion. At the age of 24, Laura Pedersen retired from the trading floor because of a medical condition exacerbated by her employment. At the height of financial volatility, she is rumored to have made more than $100 million.
It's not all Hollywood
If the frenetic pace of the trading pits epitomised by Hollywood hits such as Boiler Room (2000), Wall Street 1 (1987) and its sequel in 2010 is not quite your career choice, do not fear. A growing number of successful female retail traders are sweeping the globe.
Retail traders are characterised as individuals that trade for personal profit through the use of electronic trading platforms and online brokerage houses. Modern advances allow retail traders to access global markets and the full gamut of asset classes, including shares, foreign exchange, derivatives, and futures and commodities.
For retail traders to succeed in the markets, they must acquire the appropriate knowledge, have access to the necessary equipment and tools, and carefully choose the right asset class and markets to suit their trading style and personality.
The science of trading
From a physical profile, there is no advantage by gender thus far. Being the tallest and loudest will not assist a retail trader in any way. But can an advantage be gained through psychology or physiology?
Medical advancements have led to a number of scientific experiments in studying the difference between the male and female brain. Three areas of interest have been highlighted.
The first is the occurrence of the anterior cingulated cortex being larger in the female brain. The second anatomical difference is the prefrontal cortex being larger in the female brain. And the other main interest is that the female hippocampus section of the brain appears to be more developed. The combination of these anatomical differences appears to enable women to be more risk adverse, to remember less-than-favorable experiences and therefore stopping them from replicating trading errors and failed trading sequences. Apparently, these traits also contribute to females fearing public humiliation, thereby causing them to take more time in making decisions and paying more attention to detail
Each of these anatomical differences showcase the advantage female traders have over their male counterparts through memory, risk aversion and fear of repeating a poor trading decision. If we were to combine these advantages with a proven physiological advantage, we would strengthen the argument for successful female traders.
In 2008, Dr John Coates, a researcher at the University of Cambridge, completed a study of a select group of traders. By taking saliva swabs from a selection of male and female traders, he repeatedly tested their testosterone levels with each winning and losing trade. At some point, the testosterone of the men reached a level where they became over-confident and took unnecessary risks with trades. On the other hand, he found that women had only 10 per cent of the testosterone of men and drew the conclusion that, if more women were on trading floors there would be more stability and less risky trading behavior.
A personal success story
Therefore, if retail trading does not react to physical differences between men and women, and with a possible physiological advantage in risk aversion held by women, can they trade successfully? The answer is a resounding yes.
When I started trading I was a housewife and mother of two small children. I had no trading experience but launched myself blindly into the world of trading anyway, hypnotised by the promise of financial security.
I had no formal education in the field of finance but I had one factor in my favor: time was on my side. In between domestic chores I would sit at my computer reading, studying and testing my strategies and systems. While my fellow male traders may have had university degrees or large trading accounts accumulated from corporate positions, I had time to perfect my craft.
The key to trading success in the markets is resolve, education, determination and resilience. The path to success may take many different forms, but the requirement of knowledge is essential. There is no substitute for preparation and experience in the markets, regardless of gender.
I personally believe that female traders can succeed in the markets. I should know, because I have.
About the author
Jamie Leach is CEO and co-founder of Pacific Wealth Creations, an innovative trading education organisation dedicated to empowering traders within all markets. As the senior derivatives specialist and strategist for the organisation, she has the task of overseeing education and systems development. Jamie Leach has written and published many trading manuals, she lectures on trading and investing in the markets, and is featured in electronic press in the US and Australasia. She is vice-president of Women in Finance, Queensland.
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