The increased presence of women in stock market operations

Whilst still being a minority in a still largely male environment, the number of women traders is increasing as we also see in our client portfolio, allowing behavioral analysis on any differences with their male peers in their approach to short-term investment and trading and related performance.

As with any study of this kind, the results should be taken with a grain of salt. The results would only approximate average behavior and the risk of bias, or asymmetry due to unstructured and inconsistent data, is definitely relevant and should always be considered. Therefore, “on average” will often be repeated in this piece.

That said, let’s dive into the results of these studies which actually conclude that there is a noticeable difference in the approach of female traders compared to male traders and the related results, in terms of performance, both in absolute terms and in terms of risk. – weighted returns.

One of the biggest differences is how the two samples feel compelled to negotiate. Female traders tend, on average, to trade less frequently. They are more reflective and, probably due to higher risk aversion, tend to wait for the proper setup to get into a trade, which is something any good money manager/trader should always do. The market always presents trading opportunities and entering a trade out of boredom or just to feel the adrenaline is a potentially critical mistake.

It also seems that female traders tend to trade, on average, by holding their position longer, sizing their stop-losses further from the entry point and tend to stick to their plan by not changing the stop-loss, in fact often closing the losing position before the price reaches the stop-loss. On the contrary, men tend to trade much more frequently, over shorter time frames and using tighter stops which they tend to move or even cancel out as price approaches, thereby significantly increasing their risk.

Even their portfolio looks different, with women concentrating their investments in fewer instruments than men, allowing them to focus more and have more control over their trading and investing portfolio. This element, positive at first sight, can be detrimental to an appropriate diversification of the investment portfolio, thus increasing the overall risk, but if the investments are sufficiently decorrelated between them, or chosen to cover the systemic risk, having fewer instruments to watch is a great advantage. In general, it can be said that there is a greater tendency to avoid risks among women than among men, which leads the former to be more reflective and cautious in trading. This element could indeed limit the upside potential of trading activity, leading to lower absolute returns.

At the same time, it will likely reduce the volatility of those returns. In fact, a common mistake is to over-emphasize the absolute return of the portfolio and ignore the level of risk the trader has taken to achieve such returns.

In prop trading firms or hedge funds, what the trading manager would be looking at are the risk-weighted returns of a budding hedge fund manager: a trader capable of generating an average return of 3% per month with a maximum drawdown of 0.5% be preferred to one that yields 15% but has a drawdown of 13% and a high standard deviation of its returns. Women seem to meet, on average, these requirements more than men, given their specific approach to business activity.

The reason for these differences has been linked to both the fact that women process information and assess risk differently than men, as well as their physiological differences.

What I have personally experienced in evaluating traders is that the higher the level of knowledge of the risk aspect and the psychological aspects of trading, with particular reference to the unconscious cognitive biases that affect those who face uncertainty, fear and greed, the narrower the differences. in attitude, risk taking and returns. And that regardless of gender or any other difference. The above clearly highlights what matters most in structuring a winning business approach, regardless of anything else. The truth is that diversity is a value and different approaches naturally tend to cover each other. A properly structured fund must not only seek diversification in its investment portfolio but, more importantly, must carefully diversify its floor of traders.

Roberto d’Ambrosio is the CEO of Axiory Global

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