Quantitative analysts are in high demand from financial firms such as investment banks and hedge funds to software firms and even governments. So how to become a quant?
Referencing this article will give you an overview of what the quant is, why people are trying to become a quant. How to become a quant is the most asked question when it comes to this position. Let’s check it out.
A quant is short for Quantitative Analyst or Financial Quantitative Analyst who uses mathematical and statistical knowledge to implement mathematical models. These models are bases to study, evaluate the financial securities, and financial markets. Results and interpretation from mathematical models allow users to make decisions about risk management, investment and pricing.
Quantitative analysts are in demand in every industry, especially hedge funds at Wall Street. It’s a high-paying job, and requires complex and difficult skills to get into. Quantitative analysts at Wall Street have several things in common: Exceptional maths, good computational skills (computer programming), advanced degrees in maths, statistics or anything math-related to prove your competences.
In the past, undergraduate degrees in maths, computer science, or anything mathematical with a solid foundation of modelings can apply for quant positions. This, however, might not be true nowadays. It seems like to secure a quant position at mega hedge funds and all sorts of investment funds, you have to own a minumum of a master’s degree to prove your strong knowledge and skills.
2. How Much Does a Quant Get Paid?
Just as how much financial firms like investment banks and hedge funds pay front-office employees, compensation for a quant position is VERY high. Salary, standing alone, can be up to $250K and more. It’s fair since it’s a counterpart for a significant amount of time and effort you spend learning and earning a degree in the finance-mathematics or finance-mathematics-related sphere.
When bonuses are added in, a quant could possibly earn a pre-tax amount of $500K per year. Information about the salary of quant positions are rarely mentioned. You can check out this part for reference purposes only.
- At a junior level, with no more than 2 years of experience, your salary can be from $125K to $150K
- As you climb the career ladder, the salary is as mentioned above, which can be up to $250K without bonus and around $500K (bonus added)
- For more senior level, there’s no information about an exact amount of compensation. Albeit the high pay level, quants’s compensation rarely exceeds multi-million dollars as portfolio manager and top investment bankers could earn.
The key takeaways here: The compensation tends to be higher than at investment banks and hedge funds at junior levels. For senior levels, investment banking managing director and hedge fund portfolio manager earn more than similar positions in quant. In other words, in the hierarchy, the highest position in quant is still lower than MD and PM.
Moreover, the compensation also depends on the firm’s performance. If the firm does well in the market, you are much likely to earn higher and vice versa.
3. What does a Quant do?
The main responsibility of quantitative analysts is to apply their math knowledge and skills to design and implement complex financial models. Investment banks and hedge funds employ these models to price and trade financial instruments, or even evaluate the behaviors of participants in the financial market to make investment decisions.
An abundance of information in the market with volatility can’t be summarized in spreadsheets by analysts, even if Excel files can accommodate such abundance of data, results interpreted from these files are not granular and comprehensive, and sometimes unusable for analysis. That’s when quantitative analysts come into play.
These are main responsibilities of a quantitative analyst:
- Perform statistical analyses including risk analytics and risk modeling
- Research and analyze market trends to make modeling decisions or to convert those into inputs for models
- Implement complex quantitative models, then test the models and verify results to make sure it works properly
- Continuously modify and adjust financial models so that they won’t be obsolete while in use; sometimes, it will be a daily task, a model developed a week ago might not be suitable to make investment decisions.
- Work directly with salespeople and traders to determine prices, manage risk, and identify profitable opportunities
- Develop solutions to specific problems using algorithm models
There are a variety of types of quant. If you have an undergraduate degree, you will start off with a junior analyst position. Higher levels require more advanced degrees, at least a master’s degree. The next levels are quant analyst and quant research analyst, and senior quant analyst. The responsibilities of a quant vary depending on which position they are working in.
Not only does a quant excel in performing complex models, but he or she can be an expert in a specific area as well. Extensive expertise of them, for example, includes statistical arbitrage, derivative pricing, algorithm trading, and electronic market-making.
4. How To Become a Quant?
As mentioned above, you need a minimum of a master’s degree. This requirement is also presented in the description of a lot of firms. Undergrad degree, though having less chance than a master’s degree, still can apply. How to become a quant comes down to knowing the four areas following: mathematics, statistics, computer science (computational skills), and finance or other fields related to finance. You are working in the finance industry, so the solid foundation in finance is essential.
The question of how to become a quant comes down to answering the following questions to design a suitable pathway for yourself:
- What are required skills for a quant position?
- What courses should you take to get there?
Let’s go into each of them.
What are required skills for a quant position?
Technical skills and business skills.
In terms of technical skills, these are essential skills: big data modeling, database management, skills used for statistical analysis including Python, SQL, MATLAB, SAS, S-PLUS, and R, mathematical skills, calculus, probability and statistics, C#/Java, VBA, Excel, numerical linear algebra, portfolio theory, financial skills, equity and interest rate derivatives, systematic and discretionary trading, credit-risk products, and financial modeling .
Business skills – more to soft skills, quant positions require problem-solving, research, and communication. Especially ability to work under high pressure, you are expected to work 89-90 hours a week as many bankers do, quant is no exception.
What courses should you take to get there?
It is highly recommended that to pave your way smoothly to a quant position, these are a few decent programs you should consider:
A master’s degree in quantitative finance, mathematical/computational finance, or financial engineering would be a best fit to pursue a career as a quantitative analyst. Related quantitative fields like physics offer coursework in mathematical modeling and quantitative techniques. These courses, however, often do not last long while you are recommended to take longer courses related to it because those courses will be a lot deeper and more detailed.
Regarding MBA, it is an advanced program with practical knowledge and full of business skills. Yet, a sole MBA degree wouldn’t help you out too much unless you have mathematical and computational skills, or practice experience in financial analysis. In some MBA programs, quantitative-related coursework is not mandatory. So, you have to join deeper coursework if you want to get yourself a quant position.
CFA and CQF?
You can check out our article about MBA and CFA for further reading to understand the difference between the two and which one is suitable for your chosen profession.
CFA – Chartered Financial Analyst – offered by the CFA Institute – provides you with valuable knowledge in finance and investment, and modeling. Many students go for CFA instead of a 2-year master’s program to have an upper hand over other candidates. CFA might be useful for investment professionals but rarely be mentioned in any job requirement for quantitative analysts.
CQF – Certificate in Quantitative Finance – offered by Fitch Learning – provides training modules related to quantitative finance, derivatives, quantitative trading, insurance, modeling and risk management. This type of certification (though it’s more of a training course) might be better than CFA for quant positions.
If your undergraduate or master’s degree does not cover required skills and knowledge which quant positions need, these certifications will work best plus you have real-world working experience related to quantitative fields under your belt. As said, CQL provides more practical coursework related to what a quant does more than CFA, so it will be more suitable if you want to go for a quant.
Not everyone targets quant career at the first place, so if you are interested in this position without any relatable degrees, you can consider joining these courses above. For the sake of your long-term career, ask your professors, professional mentors or current quants at IB or HF, they will give you the most insightful recommendations that fit your situation.
5. Where Are Exit Opportunities for a Quant?
Exit opportunities for a quant are actuary (insurance firms), business analyst, financial analyst, financial engineer, quantitative trader and quantitative developer.
Skills gained from a quant position can stand you in good stead for when you apply for those careers listed above.
Quantitative analysts are in high demand from financial firms such as investment banks and hedge funds to software firms, and even governments. A unique point that sets them apart from pure non-qualitative analysts is that quants apply in-depth knowledge in math and programming to implement complex mathematical models for business purposes. This type of work reduces a huge volume of what an analyst should do. As mentioned above, a large amount of information nowadays could not be summarized in a spreadsheet so quants play a very vital role in making such a large amount of data usable and more valuable . If you want to earn a spot in these firms, walk through this article and assess what your strengths are, what you lack to make up for. Quant career is quite rewarding for anyone who wants to challenge themself, and can stand you in good stead for your future growth.