Testosterone and Cortisol in Trading for Traders – Anirudh Sethi

Books and films often dramatize financial-market traders as macho gamblers. Now there may be scientific evidence to back up differently as two researchers have linked testosterone levels to the success of traders in one London market while another researcher has linked testosterone and cortisol able to increase financial risk and may destabilize markets.

According to researchers stressful and competitive working environments could be increasing hormone levels and having an impact on decision-making. Experts agreed it was important to know how hormones affected traders.

Both cortisol and testosterone occur naturally in the body. The levels of cortisol do increase when we experience psychological or physical stress. This causes the blood sugar levels to rise and prepares the body for a “fight or flight” response.

The hormones testosterone and cortisol may reflect different stress triggers.

Changes in hormone levels may affect success in the financial markets.

As soon as we sense danger, our body will release adrenaline and cortisol. The adrenaline increases our blood pressure and heart rate and boosts our energy supplies, whereas cortisol has a different job.

Cortisol is also known as the stress hormone. It is a steroid hormone made in the cortex of the adrenal glands, which is released into the blood and transported all over the body. This release in our body leads to our senses being heightened and our heart rate rising. It primes us for our ‘fight or flight’ state to help us survive and get away from danger.

Cortisol is very good for the body in terms of the benefits it provides, unless you have too much of it. Our body is set to react to danger, release cortisol and adrenaline, before calming down once the danger is gone. But, if you are constantly in a state of stress, the cortisol is going to

stay being produced in your body and that’s when it can cause problems.

Nearly every cell has receptors for cortisol and this can cause different reactions taking place. When our body is preparing for fight or flight, there are functions that aren’t needed at that point in time, which means other important systems shut down. Our immune system, digestive system and reproductive system all start to shut down. These reactions are great if you’re just needing that fight or flight mode to escape a predator, but not so good if you spend all day being stressed-out about your trades.

One other issue is that you will be more susceptible to getting ill, while your immune system is

down. It goes without saying that if you’re recovering in bed, you’re not going to be trading

very effectively. The cortisol can also reduce appetite, leading to a lack of essential energy for good cognitive processing.

These hormones also affect the way you make decisions and can make it very difficult to stick to your trading system. Firstly, when we are in that state, we are hyper-sensitized, which can lead to over-trading or not being able to decipher what information is actually important or not in the charts. Suddenly, everything becomes an opportunity or a danger.

Another of Cortisol’s functions is that it causes us to be anxious and paranoid. These feelings may protect us if we’re in danger but they can ruin us in the market.

In terms of longer-term effects, it can cause other mind problems if you continue to be in a state of stress. This includes headaches, anxiety, sleep problems, depression, bad concentration and bad memory.

Memories are stored in a section of the brain called the hippocampus. When cortisol levels are too high it causes this part of the brain to be overwhelmed and can cause atrophy to this area. Some studies on elderly patients have shown that those with higher cortisol levels, have a worsened memory because of the damage to the hippocampus. There have also been studies on the effects of cortisol in the financial markets and although these studies have had different outcomes, one underlying similarity is that it leads to erratic behavior in general.

One particular study found that a boost in cortisol and testosterone led to investments in riskier assets, and cortisol levels can even be used to predict instability in the markets. A different study actually found traders to be more risk averse when they had higher levels of cortisol and were perceiving danger in the markets. This might sound good if you’re being more risk averse, but they suggested that this is causing instability in risk behavior. So, this is not conducive to following a good trading plan.

There are many other effects of cortisol, including becoming more self-focused, meaning you lack empathy for other people, and many other problems that can rub off on people around you and ruin your life as you know it. So instead, for the good of our relationships, our health, and our trading performance, we need to learn how to control our stress levels.

The first and most important way to control stress levels, with regards to trading, is to control your position sizes. You will find yourself remarkably less stressed if you keep your percentage at risk on each trade lower i.e. 1–2% as a maximum amount. Of course, at times it’s inevitable that you may go over that amount by accident or by poor decision making, but having a short burst of stress hormones is OK. The concern is your overtime stress, for example spending an entire trading session, or even weeks, stressed over one position. That is the killer.

Another way we can reduce stress is by practicing meditation and mindfulness. Music has also been found to reduce cortisol levels and living a healthy lifestyle is of paramount importance. This means eating a balanced diet, exercising often, getting enough sleep each night and

drinking plenty of water. Another thing that can help is spending time with family and friends, since having fun and laughing can also reduce cortisol levels.

So always remember, not to get too busy making a living and forget to have a life. Because in

the end, it is likely that whatever you are stressed about in most cases isn’t as bad as you think.

Testosterone-fueled traders make higher profits

Testosterone is one of these, and it’s of particular importance to traders for it can influence a person’s confidence and attitudes to risk during competitive encounters. While it seems almost clichéd to talk of the testosterone-fueled alpha-male, a new study shows that traders that enter the floor with higher levels of this hormone do tend to make significantly higher profits over the course of the day. The actions of testosterone and other hormones could have large effects on entire markets by affecting the decisions of people in the financial sector.

John Coates, a trader-turned-neuroscientist at Cambridge University, UK, started the study after what he saw during his time working the markets: floor traders became frenzied during big winnings, then deeply depressed during downturns. “It was sort of classic-manic behavior,” according to him.

He says that he began to suspect that hormones, specifically testosterone, might be involved because the few female traders appeared to him to be “relatively unaffected”.

John Coates and his colleague Joe Herbert also, from the University of Cambridge shadowed 17 male traders over 8 working days as they went about their business in a mid-sized City of London trading floor (the City is the capital’s financial district for the non-Brits among us). The bulk of their work took place between 11 am and 4pm, and at these times, Coates and Herbert took saliva samples to measure how their hormone levels shifted in a real-life situation. They analyzed the levels of two hormones: testosterone and cortisol, a hormone that is produced in response to uncertainty. At the end of every one, the duo recorded how much interest and loss each of the traders had made.

Between saliva samples, the traders would sit in front of a bank of monitors, processing a wealth of financial information, live news-feeds, commentaries and risk-management advice. Their decisions affect the outcomes of trades worth anywhere from £100,000 to half a billion pounds. They were well compensated for their high-stakes job and took home net annual incomes ranging from £12k to a cool £5million, even though the oldest of them was just 38 years old and the youngest, a mere 18!

Cause or correlation?

The results, appearing today in the Proceedings of the National Academy of Sciences1, were clear according to Coates: “Traders had an above-average gain on the days their testosterone

was above average.” In 14 out of the 17 cases, the traders earned more money on days they had elevated morning levels of the hormone.

Was the testosterone behind the winnings? Coates thinks so. But co-author Herbert cautions that the results aren’t strong enough to prove that testosterone is driving risky behavior: “It remains a correlation, not a causation,” he says.

Levels of cortisol, on the other hand, appeared not to correlate with winning or losing. Rather, the hormone appeared to track with the volatility of the market itself, an element that may have made traders’ days more stressful.


Coates and Herbert found that the traders were significantly more charged with testosterone on days when they beat their previous monthly average, than on those when they came under it. One trader, for instance, enjoyed a 6-day streak that saw his profits soar to twice their

historic average and his daily testosterone levels rise by 76%. And on days when the traders’ morning levels of testosterone were above normal, they made higher profits than days once they started off with low levels.

These patterns suggested that high testosterone levels lead to high profits. To rule out other explanations, the duo used daily questionnaires to establish that none of the traders had received any important personal news or had eaten anything that might significantly interfere with their release of hormones. And they excluded the consequences of overarching movements within the markets by showing that different traders experienced bursts of testosterone on different days.

The effects of testosterone on trading success makes sense in the light of other studies. The hormone triggers a number of behaviors that you would expect to improve a trader’s performance including an appetite for risk, persistence, and boldness in the face of new challenges. Successes can themselves boost testosterone levels, creating a cycle of even further triumphs. This ‘winner effect’ is additionally seen in competitive male athletes, whose testosterone levels tend to rise before an enormous event and rise even further after a win.


Coates and Herbert also measured the traders’ levels of cortisol, a ‘stress hormone’ that alters both body and behavior in response to stressful or threatening conditions. They predicted that the traders’ cortisol levels would increase on days once they made specifically large losses, but that wasn’t the case.

Instead, the hormone seemed to respond to risk. The traders developed higher levels of cortisol by the end of days where their profits showed the largest variations around the average value.

The more volatile their day, the more cortisol they built up. So unlike testosterone levels, which are linked to financial return, cortisol levels relate more closely to financial uncertainty, of the sort that traders face on a daily basis.

To test that idea more objectively, to duo measured the nebulous concept of financial

uncertainty through a form of trading that’s linked to it – the options market. Options are contracts that give owners the right to buy or sell something at a set price in the future. The value of these contracts depends heavily on how the value of the commodity at stake will change in the future, which makes the options market an effective measure of economic

uncertainty. Using data from the options market, Coates and Herbert found that a trader’s daily

cortisol levels do indeed show a good match to overall levels of economic uncertainty.

It’s more likely that cortisol responds to the state of the markets rather than the other way round, but it could also affect a trader’s attitudes to risk, in the opposite direction to testosterone. Small bursts can improve both motivation and attention, but longer chronic exposures can cause anxiety and a tendency to overreact to imagined risks.

Hormonal economies?

These effects could have large implications for entire markets and economies. In periods of constant stress, like market crashes or depressions, a perpetual supply of cortisol could make traders more averse to risk, which would exaggerate any downward spirals.

On the opposite hand, high levels of testosterone during bubbles and times of plenty, could amplify growth by stimulating the risk-taking antics of traders. However, Coates and Herbert speculate that traders who experience a continued rise in testosterone could eventually start to lose money, by becoming so risk-prone and impulsive that they begin to make bad and unprofitable decisions.

Together, the opposing actions of testosterone and cortisol could help make sense of the spiraling nature of bubbles and crashes and also the often-irrational decisions of individuals trapped in them. By pulling on behavioral puppet-strings, they could account for the unpredictable decisions that even experienced traders sometimes make.

These implications seem grand, but Coates and Herbert remain modest about their results. Despite their efforts to run the study during a time when the markets are usually at their most volatile, they actually caught a period of unusual financial stability. Between that and also the short 8-day sampling period, it isn’t clear how a trader’s hormones would respond over an extended time, or to a more unpredictable economic climate.

Nonetheless, they suggest that economic theories would be better served by taking heed of the ways in which basic biological processes like hormone production influences more complex

behavior. It’s not just the minds of investors that drive economies, but their hormones too.

Cortisol and testosterone increase financial risk taking and could destabilize markets

Raised levels of the hormones testosterone and cortisol can make traders take more risks, which could create instability in financial markets, a study suggests.

Traders are like elite athletes – they have to be taken care of. High testosterone levels in men are shown to make them confident and successful in competitive situations.

Up and Down

Previous research has shown that male traders make significantly higher profits on days when their morning testosterone levels were above their daily average.

Writing in Scientific Reports, the authors carried out two experiments as part of their study.

First, they measured natural levels of the 2 hormones in 142 male and feminine volunteers while they played a trading game in groups of 10.

Men who had higher levels of cortisol were more likely to take risks, which led to instability in prices.

But there didn’t appear to be a link between cortisol and risky trading within the women who took part, which is according to other research showing that ladies respond to stress in different ways.

In a second experiment, 75 young men got one among the hormones before playing the game, then a placebo.


The results showed that cortisol seemed to encourage riskier investments while testosterone increased the sensation that they were on a streak.

The research team said their work gave a far better understanding of traders’ behavior and the way it’d affect financial markets.

Elite Athletes

Dr Ed Roberts, study author from the department of drugs at Imperial College London, said the traders’ working environment was key: “They are like elite athletes – they have to be looked after.”

He also said there was more research to do. “We only checked out the acute effects of the hormones within the lab.

“It would be interesting to measure traders’ hormone levels in the world, and also to ascertain what the long run effects could be.”

Dr Richard Quinton, consultant and senior lecturer in endocrinology at Newcastle-upon-Tyne Hospitals and University, said it looked to be a “powerful and robust study”.

He added that a noticeable area for future research would be watching the behavioral effects of giving small doses of cortisol inhibitors to traders.

Prof Ashley Grossman, professor of endocrinology at the University of Oxford, said the study suggested that raised hormone levels can both cause instability within the stock markets and feed off it.

He said: “With massive market volatility forecast over Greece and its debt repayments, or their lack, it is vital to understand just what proportion impact hormones have on traders’ decisions.”

Implications of hormones in financial markets

Nadler believes the research suggests the need to consider hormonal influences on decision making in professional settings because biological factors can exacerbate capital risk for firms and market risk for all participants.

“Firms may, therefore, benefit from a better understanding of when and how hormones assert their influence — such as through exceptionally positive feedback cycles that are unsupported by fundamentals or technical indicators,” says Nadler.

The most straightforward recommendation is to implement “cool down” periods to interrupt exceptionally positive feedback cycles and return the focus to assets’ fundamental valuations to reduce the possibility of biased decision making.



Financial trading is basically risky business for people and economies alike. Millions of pounds and dollars rest on the fast decisions of stressed people, working under extreme pressure. With such high stakes, it’s worth remembering that traders, regardless of their intellect or experience, are as fallible as the rest of us and their brains and bodies are influenced by the same ensemble of hormones.

“Men as a rule aren’t taught how to double-check and in fact, are taught to ignore their feelings,” she said. “Inserting the step of analyzing feelings has numerous benefits to men making risk decisions – not the least of which is slowing down the decision process.”

Male traders who take this extra step have made dramatic improvements in their trading results, said Shull. “They trade less, have fewer incidents of overtrading, engage in less revenge trading and generally make better market decisions.”

Female investors tend to outperform males over longer periods of time since males often are more aggressive and willing to take on more risk in their portfolios than women, said Tamra Stern, partner and director of wealth management at Main Street Research in Sausalito, Calif.

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