Quants: What do they do and how do they develop

Quantitative trading (also known as quantitative trading) involves the use of computer algorithms and programs based on simple or complex mathematical models to identify and utilize available trading opportunities. At the back end, quantitative trading also involves research on historical data to identify profit opportunities.

Quantitative trading is widely used in high-frequency, algorithmic, arbitrage and automated trading at the individual and institutional levels. Traders involved in such quantitative analysis and related trading activities are usually called “quantitative analysts” or “quantitative traders”.

Key points

  • Quantitative trading (also known as quantitative trading) involves the use of computer algorithms and programs based on simple or complex mathematical models to identify and utilize available trading opportunities.
  • Quantitative trading also involves research on historical data, aimed at identifying profit opportunities.
  • Quantitative trading is widely used in high-frequency, algorithmic, arbitrage and automated trading at the individual and institutional levels.
  • In the past two decades, MBA and PhD. The holders of finance, computer science and even neural networks are taking away the jobs of traders from well-known trading institutions.
  • In addition to small local trading companies, employers also include trading desks for global investment banks, hedge funds, or arbitrage trading companies.

How did quantitative trading evolve?

Earlier, the market was based on entities and on-site. Traders and market makers interacted to agree on securities, prices, and quantities, and settled transactions on paper. Among other qualifications, a loud and clear voice and a strong physique are considered an asset of trade candidates because these make them impressed on the trading floor.

As the market becomes digital, has global influence and expansion, the floor is empty. Traders who had little to offer but loud voices began to disappear, making way for computer-savvy technicians. Electronic markets have provided huge expansion, large amounts of transaction data, new assets and securities, and opportunities for data mining, research, analysis, and automated trading systems have emerged.

In the past two decades, MBA and PhD. The holders of finance, computer science and even neural networks are taking away the jobs of traders from well-known trading institutions.

Introduction to Quantitative Traders

Depending on the trading profits generated, a quantitative trader may work for a small, medium or large trading company and receive a generous salary and high bonus. In addition to small local trading companies, employers also include trading desks for global investment banks, hedge funds, or arbitrage trading companies.

Nowadays, in order to obtain a job as a trader in a mature company, it is usually necessary to have a professional master’s degree (MBA, PhD, CFA) in the quantitative field, unless it is an experienced trader with mature work experience. Other inexperienced young quantitative analysts can start from small companies or junior analysts and gradually rise over a long period of time, even though this is a highly competitive field.

In addition to a background in finance, mathematics, and computer programming, a quantitative analyst should also have the following skills and background:

  • Expertise in the use of computers
  • Practical knowledge of one or more programming languages
  • Familiar with building and customizing trading systems and automation possibilities
  • Familiar with data feed and use
  • Data mining, research and analysis capabilities
  • Risk tolerance and temperament of traders
  • Innovative thinking that constantly discovers new strategies and opportunities

Quantitative Trader Tools

Quantitative traders implement their own algorithms on real-time data including prices and quotes. They need to be familiar with any related systems that provide data feeds and content. Quantitative traders can usually use these tools:

  • The system for accessing market data, such as Bloomberg Data Terminal, has the necessary technology and quantitative analysis tools suitable for its transaction flow (such as Bollinger Bands, charts, etc.)
  • Computer systems with programming language compatibility: Perl, C++, Java, Python are common systems in the trader community
  • Availability of historical and/or real-time data to backtest the strategies they determine
  • Automatic access to broker/trading accounts usually through direct market access

Quantitative Trader Responsibilities

Using the above content, quantitative traders usually perform the following activities:

  • Determine the trading strategy: it can be based on simple price-volume figures or complex mathematical models
  • Develop and construct working algorithms/programs/systems according to trading strategies
  • Back-testing the prototype to verify the actual implementation and required customization: Once determined, it is important to back-test the strategy on historical/real-time test data to evaluate actual feasibility.Include further changes as needed
  • Including risk management standards: conducting scenario analysis, implementing stop-loss mechanisms, capital allocation restrictions, etc., to make the system as protective as possible
  • Implement a real-time transaction execution system on the open market: let the quantitative settings go online, and continue to observe the profit potential. Further customization of identified enhancements or failures (if any)
  • Continue to work hard to determine a new strategy
  • In addition, work in the background of the research department to provide trading skills for traders in the trading department

The job of a quantitative trader is a continuous and rigorous process with a long working time. Today’s trading seems to have become a contest between the computer and the computer market, and the contribution of human traders is limited to constructing computer programs that are smart enough to perform better transactions than those developed by their peers. The higher the degree of automation in the overall market, as profit opportunities decrease day by day, greater efficiency is required.

In the United States, quantitative trading positions are most common in New York and Chicago, and in areas where hedge funds tend to cluster, such as Boston, Massachusetts and Stamford, Connecticut. Globally, quantitative traders may find employment opportunities in regional financial centers such as London, Hong Kong, Singapore, Tokyo and Sydney.

Bottom line

The job of a quantitative trader and related benefits seem to be very profitable, but people who are eligible to enter this highly competitive field require a wide range of skills, knowledge and temperament. The success rate of quantitative traders is usually moderate, and many traders diversify their investments or move to other areas due to burnout a few years later. In addition to all the necessary infrastructure, skills, and knowledge, one needs to have the right mentality to become a successful quantitative analyst.

How much money can Quants make?

Salaries in the financial sector are often very high. In the field of quantitative analysis, it is not uncommon to find positions with a published salary of $250,000 or more. If bonuses are included, quantitative traders can earn more than $500,000 per year. As with most occupations, the more experience you have and the more experience in your resume, the more likely you are to be paid. Hedge funds or other trading companies usually pay the highest fees, and entry-level quantitative positions may only make $125,000 or $150,000.

How much money can a hedge fund quantitative trader make?

If you are a quantitative trader, you usually get the highest salary in a hedge fund job. For example, according to Selby Jennings’ 2020 North American Quantitative Team Salary and Bonus Survey, a graduate with a doctorate degree. STEM fields (science, technical engineering, or mathematics) in top hedge funds or independent trading companies, the total compensation (salary and bonus combined) may be between 300,000 U.S. dollars and 400,000 U.S. dollars.

What are the steps to become a Quant?

Most companies need at least a master’s degree in a quantitative subject (mathematics, economics, finance or statistics), or preferably a doctorate. A master’s degree in financial engineering or computational finance may also be an effective entry point for the career of a quantitative trader.

If you have an MBA, in addition to having solid experience in the real world, you may also need very strong math or calculation skills to be hired as a quantitative trader.

In addition to educational requirements, quantitative traders must also possess advanced software skills. C++ is usually used in high-frequency trading applications, and offline statistical analysis will be performed in MATLAB, SAS, S-PLUS or similar packages. Pricing knowledge may also be embedded in trading tools created using Java, .NET, or VBA, and is usually integrated with Excel.

Which area of ​​statistics is most useful for Quants?

Certain aspects of statistics are the backbone of quantitative trading, including regression theory and time series analysis. Electronic engineering techniques such as Fourier analysis and wavelet analysis are also used for quantitative analysis. Most of the statistical concepts you need to understand in quantitative trading are so advanced that they are not taught at the undergraduate level. For this reason, it is important to undertake advanced studies in statistics (ie doctoral programs).

What programming languages ​​does Quants need to know?

C++ and Java are the main programming languages ​​used in trading systems. In addition to knowing how to use tools such as R, MatLab, Stata, Python, and to a lesser extent Perl, Quants usually requires coding in C++.

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