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Testosterone predicts profits on trading floors

EndocrinologyApr 16, 08

Financial traders make more money when their testosterone levels are high, perhaps because the male hormone makes them more confident and focused, British researchers reported on Monday.

Their study of male traders in the City of London financial district showed they made bigger profits on days when their testosterone levels were already high.

Testosterone may help focus the mind but constantly high testosterone levels are likely to make traders foolhardy, the researchers at the University of Cambridge cautioned.

The stress hormone cortisol seemed to be linked not with failure, but with uncertainty, the researchers reported in the Proceedings of the National Academy of Sciences.

“Rising levels of testosterone and cortisol prepare traders for taking risk,” said Dr. John Coates, who led the study.

“However, if testosterone reaches physiological limits, as it might during a market bubble, it can turn risk-taking into a form of addiction, while extreme cortisol during a crash can make traders shun risk altogether.”

For the study, Coates and colleagues tested the saliva of 17 male City of London traders for eight consecutive business days. The samples were taken at 11:00 a.m. and 4:00 p.m., before and after the bulk of the day’s trading.

Each trader also recorded his profit and loss (P&L).

“The traders, in the normal course of a working day, sit in front of a bank of computer screens displaying live prices of currency, commodity, bond, and stock index futures,” the researchers wrote.

Daily testosterone was significantly higher on days when traders made more than their one-month daily average, the researchers found.

“On days of higher 11:00 a.m. testosterone, traders made a P&L for the rest of the day that was significantly greater than on lower testosterone days,” they wrote.

Coates’s team believed that they would find higher cortisol levels when the traders lost money, but this was not the case. Instead, cortisol levels rose during times of financial uncertainty.

“Market traders, like some other occupations (such as air traffic controllers), work under extreme pressure and the consequences of the rapid decisions they have to make can have profound consequences for them, and for the market as a whole, said Joe Herbert of the Cambridge Centre for Brain Repair, who also worked on the study.

“Our work suggests that these decisions may be biased by emotional and hormonal factors that have not so far been considered in any detail.”

Coates, who is a former trader, said this may help explain both rational and irrational behavior.


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