Even if you’ve never seen Annie Get Your Gun, you might know one of its songs: “Anything You Can Do, I Can Do Better.” This lyrical one-upmanship is in good fun. But the same argument shapes competition in real life. And it begs the question: Who is the better trader, men or women?
Although the answer is up for heated debate, it may not have to be settled—ever. There are things men and women can learn from each other when it comes to trading. Some sex-specific traits are arguably rooted in stereotypes, but there are also some natural tendencies that are hard to ignore.
"There is a consistent finding across research studies that gender differences do exist and do factor into the way men and women trade. Whether these differences are due to genetic differences between the sexes or because of the way the sexes are generally treated growing up—nature versus nurture—is unclear," says Dr. Gary Dayton, trader, author, and founder of TradingPsychologyEdge.
One of the biggest differences between the sexes is that men tend to be willing to take on more risk than women.
"Men, for example, tend to allocate a greater portion of their investment portfolio to stocks compared to bonds, and the stocks chosen tend to have a higher beta than the market. Women tend to be more risk-averse," Dayton says.
Let's take a look at what each sex can learn from the other.
What Can Men Learn From Women?
1. Asking for directions when you are lost. Men: It’s okay to admit that you don't know something. Instead of driving in circles or miles in the opposite direction, asking for directions or help from a trading mentor can help point you back toward potential profitability.
2. Trade less often. Trading too often can sometimes hurt results. "We see men’s overconfidence manifest itself in overtrading. Overall, men trade about 50% more than women due to overconfidence. Excessive trading leads to poorer results. Men can simply reduce trading frequency and odds are, they will increase their overall returns," Dayton says.
3. Trade with less risk. Women are more risk-averse than men, and men can learn from this attribute. "Men can view trading and investing as a game rather than as a business. They are more likely to seek out and trade the hot stock tip and take poorly planned trades. Recent studies show that hormones such as testosterone and cortisol can bring on excessive optimism and risky trading behavior in men. Men need to be consciously aware of this strong tendency," Dayton says.
4. Trade smaller positions. Are you going for the home run, or looking to get on base with singles? Bigger position sizes can be detrimental to your profit and loss line. "I've noticed that men seem to trade with larger contract sizes than their account can handle, which can lead to much larger losses, while females generally trade with smaller contract sizes relative to account size,” says Sarah Potter, professional trader and president of shecantrade.com. “Men can learn to be more cautious and better manage their risk/reward when starting out."
Bottom line? Men may approach trading in a head-on approach. "My experience is that men have a greater risk of trading inappropriately—too big or too aggressively. That comes from how men are socialized—driven to success or the fear of how they would look as having failed. This is a common cause of men having trading challenges," says Steve “Slim” Miller, president and host of askSlim.com.
What Can Women Learn From Men?
1. For starters: Trading isn't just for men. Women can and should trade and invest. "Men seem to be more willing to follow the markets, pay attention to news events, and discuss trading strategy with each other. I hope that women will begin to feel that they can be a part of discussions about the markets. As more and more investors have the tools to manage their own portfolios, I hope that more women will show an interest in investing and trading," Potter says.
2. Develop more confidence in your trading abilities. While a man may act confident even when he's not, women can learn to build confidence in their investing abilities through education, which can increase knowledge and trading and investing skills. Seek out experts in investing and trading and learn what you don’t know. The good news is that women are more likely to do this naturally. "Women are more likely to seek out professional advice than men, and in this way, they can learn about how trading strategies work, how to best apply them, and what can be expected of them," Dayton says.
3. Develop a warrior approach. Some men approach the markets as a battle to be won; women can learn from this philosophy. "Taking on more aggressiveness could be a benefit. I have seen women in the trading pits stand on a box to gain height and go to battle with similar ferocity as men," says Miller.
Warriors don't give up. Be persistent and you can learn how to implement your investing goals successfully.
4. Consider using leverage. Women are often more naturally risk-averse and that can lead to underperformance or missed market opportunities. Consider taking on additional risk when appropriate to increase the potential for greater returns. "Women may commit less capital to a trading idea, even though it may be a very good one. Leverage can be a strong edge in trading. When we have robust indications of a vigorous market move, it can be a time to step up size or add to an already winning position," says Dayton.
Whether it’s nature or nurture, men often tend to be competitive, confident, and more willing to accept risk. Women tend to be methodical, more willing to follow through with a trading plan, and more willing to learn and do research. All these attributes are important for successful trading, and men and women can learn from each other.
A Platform for All
TD Ameritrade's Nicole Sherrod shares what it takes to leverage trading opportunities by thinking like a CEO.