What Women Lack in Numbers on the Trade Floor, They Make Up For in Skill

Alyssa Strasser, Valley Forge 2018

“We found that men take more risk than women. That would be fine if they also made more money — but they don’t” — David Hesketh

When it comes to gender diversification, studies have shown that women have strong attributes that make them great risk takers and investors. However, women only account for 12–15% of trading roles. Why have we not seen improvement in the gender balance of trading and portfolio management roles?

What does research tell us about women as traders?

- Women trade less: In a recent study done by Vanguard during the volatility of the pandemic, male households traded almost twice the amount, 7.5% making trades, verse female households, 4% making trades. There is further research showing women trade less. Trading costs are expensive and eat away at returns.

- Women stay invested. In March, looking at some online platforms, “…men on the platform were 56% more likely than women to reduce risk in their portfolios during the sell-off, and almost twice as likely to withdraw their money”. Acting impulsively in the short-term could have significant consequences on long term returns.

- Women follow the rules: In a research study, male traders are 2.5x more likely to break trading rules than women. Women had a higher percentage of correct short trades; 58% of women placing short trades correctly, compared with less than 53% of male traders.

There is much additional research that highlights how adding women to a team can help institutions have fewer fines, fewer brokerage costs, and potentially higher returns.

Gender differences that may affect the way men and women trade:

- Men’s Hormonal Make-up: There is research that testosterone and other steroid hormones in males can affect risk preferences leading to more irrational risk taking. High levels of testosterone are associated with riskier behavior.

- Overconfidence: A study on trading behavior found that men trade 45% more then women, which reduced men’s returns by 2.65% a year. The high levels of trading in financial markets comes from overconfidence which can lead to overestimating their ability. “We don’t find that women make better trading decisions, they just make fewer bad ones.” — Odean

If research has shown that women can help money managers be more profitable and less risky, then why aren’t we seeing more women as traders and portfolio managers? Again, Women generally account for 12–15% of trading roles.

The typical compensation structure for traders gives bonuses to the best traders, while letting the worst performers go. Women, tending to be risk adverse, have shied away from the instability of the job and compensation. In order to have a larger proportion of women, financial systems need to adjust how they pay their staff.

Beyond compensation is culture. Workplace culture is notorious for being slow to move, and trade floors have a reputation for being a “boys club”. The culture and the compensation are hindering women taking these jobs. Thus, you have a small pipeline for female senior leaders, and this continues the cycle of the male dominated field.

Call to action: Rebalance Gender Ratios

In my experience as a woman in a trading seat, to change the gender make-up of an organization there are several aspects that should be focused on. The organization needs to think about the pipeline and the compensation structure, which then will feed into the most important criteria, culture. Do women feel supported in their roles, feel they are treated fairly, and have runway for growth? For women in trading roles, true mentorship and sponsorship are crucial to retention and promotion of women. We tend to like and spend time with people who are similar to us, trade floors being male dominated, it isn’t surprising who will get selected for promotions. Even if unintentional, it is my belief this is the number one issue why you do not see retention and growth in women as traders. Not having senior women makes it harder to recruit women, making it harder to change the culture, alas the cycle. Making it an emphasis to mentor and sponsor the women currently in those seats, I do think is a way to drive change.

I encourage those in senior positions to be creative and proactive in being inclusionary in their workforce.

References:

Barber, B. M., & Terrance Odean. (1998). “Boys Will Be Boys: Gender, Overconfidence, and Common Stock Investment.” Quarterly Journal of Economics. doi:10.2139/ssrn.139415.

Bose, S., [J1] . (2016). “The Role of Hormones in Financial Markets.” SSRN Electronic Journal, doi:10.2139/ssrn.2743087.

Butcher, S . (2018). “Data Proves That Women Make Far Better Traders than Men.” EFinancialCareers, 4 May 2018, news.efinancialcareers.com/uk-en/197066/exclusive-figures-show-women-make-far-better-traders-men.

Darbyshire, M.. (2020). “Women Trade Less Often than Men, with Better Results.” Subscribe to Read | Financial Times, Financial Times, 3 Apr. 2020, www.ft.com/content/564bc758-1f45-4937-9406-6ad2d4ee48f7.

Huang, J & De Luca, T. (2020). “The Same but Different: Gender and investor behavior in

Vanguard retail accounts.” Vanguard Research, Valley Forge, Pa.: The Vanguard Group

Irrera, A. (2020). “Wall Street Wants More Female Traders, but Old Perceptions Die Hard.” Reuters. Thomson Reuters, 14 June 2018. Web. 29 Nov. 2020.

Lu, W., Swan, P.L., & P. Westerholm, J. (2016). “The Gender Face-Off: Do Females Come Out on Top in Terms of Trading Performance?” 29th Australasian Finance and Banking Conference 2016 (2016).

University of Leicester. (2016). “Female Traders Can Reduce Market Crashes, Expert Says.” University of Leicester. ScienceDaily, 07 Mar. 2016.