Whereas behavioral finance has focused on cognitive biases, little attention has been paid to personality characteristics and differences among individual market participants. Therefore, this study systematically explores the role of personality in the performance of professional traders in the real-life setting of the currency market. It explores the strategies used by foreign exchange traders to generate profits, and it determines connections between personality characteristics and various measures of trading performance. Data were collected from 416 foreign exchange traders at leading banks in the North American foreign exchange market. A self-developed survey included items on traders’ personality and mechanisms used to generate profits. Dependent variables included objective and subjective measures of trading performance. An exploratory factor analysis results in two main factors of profit generation. Considering separately subgroups of traders in various trading roles using different profit strategies yields significant connections between personality factors and trading performance (37%). These findings show that personality plays an important role in the decisions taken by actors in financial markets.
The Psychology of the Foreign Exchange Market
ISBN: 978-0-470-01201-7 July 2005 278 Pages
This book demystifies the foreign exchange market by focusing on the people who comprise it. Drawing on the expertise of the very professionals whose decisions help shape the market, Thomas Oberlechner describes the highly interdependent relationship between financial decision makers and news providers, showing that the assumption that the foreign exchange market is purely economic and rational has to be replaced by a more complex market psychology.