FAQ
What is quantitative finance?
Quantitative finance is math, statistics, and computer science applied to finance. [Video]
What is financial engineering?
Financial engineering is the construction and deconstruction (engineering) of derivative products. For example, options can be built using a combination (construction) of the underlying asset and bonds. Financial engineers can also deconstruct options into parts which are then sold.
Financial engineering is a specific area under quantitative finance. It uses math, statistics, and computer science applied to finance to construct or deconstruct financial products.
What are the three types of quants?
Quants - Often referred to as “quantitative research” or “model development.” Their job is to use math and statistics (including ML and AI) to build models to solve business problems. Programming is a requirement as that is how you explore and build models. Understanding the financial or operational problem is important to generate meaningful solutions.
Implementation - Often referred to as “quant dev.” They are responsible for implementing models and creating tools for the business (traders, operations, and etc.). Their expertise is in utilizing math and computer science (software and hardware) to optimize run times. This can include mathematical simplification, better written software and technologies, or changes in hardware to reduce run time. They are the connecting piece between the quants and the business. In HFT they can cover a mix of “quant” and “quant dev” however the quant side is often less rigorous. For example, they may be taking advantage of lags in other traders execution systems or utilize game theory to predict other market participant’s decisions.
Business - Often a “trader” or “quant trader” will be the business user of the tools and models however other teams such as the operations teams are end business users. A deeper understanding of the business such as markets, finance, infrastructure, financial products, and company operations are important for their role. They do need some understanding of math, stats, ML, AI, and programming as they are using the tools built on these topics however their focus is more finance and economics than math, stats, and programming.
Buy Side vs Sell Side
The buy side means those who buy and sell assets (investing). The buy side consists of hedge funds, wealth management, HFT, and trading firms.
The sell side consists of those who create assets to sell (banking and financial services). The sell side consists mainly of banks who create loans, stocks, bonds, and derivatives.
Do you really need a Masters degree?
In countries with developed financial markets, a masters is a bare minimum. The amount of education needed to start an entry level position is at a mastery level. Even when masters students are hired, there is a lot of on the job training required. Many firms will not explicitly train new employees, so it is up to the employee to learn and become valuable to the firm. Those who do not learn enough are often let go within the first year or two. PhD students also have a lot to learn on the job.
In global finance hub cities, the competition for quant jobs is high. With this high competition, companies can be choosy about the requirements. Remember time is money and training employees is an expense. It is far more cost effective to training Masters and PhD students then to train undergraduate students who have much more to learn.
Do I need to be physically located in the US?
Yes! The jobs in quantitative finance pay well and there is a lot of competition in the US as well as other financial hubs around the world (though the US typically pays much better). The majority of quants in the US are actually from other countries. The best of the best from around the world come to the US for a graduate degree because it is the easiest way to get a job in the US. You can also think about this from the perspective of hiring. If you have 100 applicants for a job and 75 are in the US, why would you go through the extra work to bring someone over seas? There are also rules in the US which encourage companies to hire US citizens. Overall the education here prepares students just as good as other places so it rarely makes sense to bring in internationally located talent.