Endogenous Steroids and Financial Risk Taking on a London Trading Floor
Read the paperopens doi.org in a new tab
What they found
Coates, a former Wall Street trader turned neuroscientist, took saliva samples from 17 male traders on a London floor twice a day for eight days and compared their hormone levels with their P&L. Traders' morning testosterone was higher on days when they went on to make above-average profits, and cortisol (the stress hormone) rose with the volatility of their returns and with market volatility, not with losses per se. The authors suggest that testosterone may boost confidence and risk appetite in a winning streak, potentially to the point of overconfidence, while sustained cortisol may make traders excessively risk averse in a prolonged downturn.
What you can use
- Hormones respond to trading outcomes and volatility, and they feed back into risk appetite; winning streaks may literally change your chemistry toward more risk.
- Stress is driven by uncertainty and volatility more than by losses, so a choppy, volatile market is physiologically the hardest to trade well.
- Rules that fix position size in advance protect you from a risk appetite that fluctuates with your biology.
Caveats
Seventeen traders over eight days; small, exploratory, and correlational. The causal story (testosterone drives risk-taking) was proposed, not proved.
Tags: professional, neuroscience, hormones, risk-taking
Summaries are our own reading of the paper, not the authors' words. Educational only, not advice. Discuss it in Book Club.