Where quants and finance coincide, that point gives birth to a lucrative profession. And that is Quantitative Financial Analyst. It’s one of the most sought after professions in the present scenario as only high caliber professionals can scratch on the surface.
When asked a quantitative financial analyst, what’s the only thing that sets this career apart from others, he mentioned that it’s the “ability to be okay with not knowing” and to “prepare oneself to know as much as s/he can.” So you can understand that this profession needs a person who is logical to the core as well as not bothered much about knowing more.
In this career, your job is to see through the vast databases and discover patterns so that you can reduce risk and increase profits. But before you ever decide to go for this career, you need to know whether this career is the right fit for you or not. At a basic level, to be able to thrive in this career, you need to be amazing at four specific subjects – mathematics, data science or software, finance, and application development.
In this article, we will discuss how you can become a quantitative financial analyst. We will start with education, and as we go along, we will talk about job responsibilities, skill-sets required, compensation, and finally, we would offer you a guide to take the first steps to become a quantitative financial analyst.
Let’s get started.
- Quantitative Analyst Education Requirement
- Subjects You Need to Know as a Quantitative Analyst
- Recommended Certifications for Quantitative Analysts
- Quantitative Analyst Job responsibilities
- Quantitative Analyst Skill-sets required
- Quantitative Analyst Salary / Compensation
- Your First Steps as a Quantitative Analyst
Quantitative Analyst Education Requirement
As already mentioned before, you need to analyze and look through vast data to understand patterns. You need tools to come to conclusions.
So, the right education would give you those tools to perform those tasks. Here’s what you should aim for –
- Bachelor’s degree in finance or math/science is a must.
- Masters Degree – If you want to become a quantitative financial analyst, it’s hard to get a job just by doing graduation. You need to do masters as well. For masters, you can do specializations in multiple fields. For example, you can get a master’s degree in quantitative finance, or you can go for financial engineering. If you can’t avail of these specializations, you can go for a related field to quants, i.e., a master’s degree in physics/statistics/math.
- Dual Programs – Your aim should be to find a dual program that offers both quantitative finance and applied mathematics. You can take a major and a minor. If you don’t get these two in the same program, you can go for a major in quantitative finance and minor in economics. Even that will do.
- Computer Programming – Another option to take is to go for computer programming and do a course in investments. Many students who aim to become a quantitative financial analyst do that.
- Ph.D. – You shouldn’t stop yourself just at the master’s degree. Many employers hire only those applicants who have a relevant doctoral degree. So consider doing a Ph.D. while you work.
- Multiple Internships – There’s another option. Studying all these subjects would take some time. What you can do is to take up multiple internships to learn the basics of all the subjects at a practical level and pursue your study along. So that when you complete your study, you would have some practical experience to show forth to the reputed employers.
Subjects You Need to Know as a Quantitative Analyst
There’re many subjects you need to study. And there’s no end to learning in this profession. But here’s a list of subjects you should know to be able to perform your duties as a quantitative financial analyst –
- Linear Algebra
- Financial Reporting
- Computer Programming
- Financial MarketsFinancial MarketsThe term "financial market" refers to the marketplace where activities such as the creation and trading of various financial assets such as bonds, stocks, commodities, currencies, and derivatives take place. It provides a platform for sellers and buyers to interact and trade at a price determined by market forces.
- Financial ModelingFinancial ModelingFinancial modeling refers to the use of excel-based models to reflect a company's projected financial performance. Such models represent the financial situation by taking into account risks and future assumptions, which are critical for making significant decisions in the future, such as raising capital or valuing a business, and interpreting their impact.
- Financial Analysis
There’re many more to add. But these are the main subjects you need to get a good grip on.
Recommended Certifications for Quantitative Analysts
- This profession is the combination of multiple skills, and investment is one of the most important parts. No certification can offer you so much knowledge and expertise than this CFA examinationsCFA ExaminationsThe Chartered Financial Analyst (CFA®) Program offers a graduate-level curriculum and examination program designed to expand your working knowledge and practical skills related to investment decision-making. .
- CFA provides you with overall knowledge of Corporate Finance, Accounting, Financial Analysis, Fixed IncomeFixed IncomeFixed Income refers to those investments that pay fixed interests and dividends to the investors until maturity. Government and corporate bonds are examples of fixed income investments., Derivatives, Alternatives Investments, Investment Management, Portfolio AnalysisPortfolio AnalysisPortfolio analysis is one of the areas of investment management that enables market participants to analyze and assess the performance of a portfolio to measure performance on a relative and absolute basis along with its associated risks., and more.
- CFA certification is considered to be Gold StandardGold StandardThe gold standard was a monetary term used when gold exchange was used instead of paper currency. within the Finance Industry.
- CQF is a part-time Financial EngineeringFinancial EngineeringFinancial engineering is field which uses mathematical techniques, financial theories, engineering tools and advanced programming techniques to solve critical and complex financial problems. program that can be completed as a single six-month program or split into 2-3 month levels
- It provides in-depth training in derivatives, IT, Quantitative TradingQuantitative TradingQuantitative trading is a computer software-based trading strategy that uses mathematical models and calculations to assess patterns and trends in the movement and behaviour of stocks to pick undervalued stocks at the right time and make a profitable trade execution., Modeling validation of Risk Management, Insurance, and more.
- CQF will give you an edge over others because it will help you learn trade secrets and give you an experience of how quantitative finance analysts need to work in a real-world environment.
Thus, if you want to do well, along with all the educational degree, consider doing both of these certifications as early as possible in your career.
Quantitative Analyst Job Responsibilities
job responsibilities may differ as per the employer and the policies of the company. But there’re certain things that wouldn’t change much. So here’s the list of job responsibilities that a quantitative financial analyst has to perform –
- Making modeling decisions: As a quantitative financial analyst, you need to make modeling decisions. To do that, you need to research, analyze market trends, see statistics, and finally make an informed decision.
- Develop quantitative models: Your job would be to develop and implement complex quantitative models, for example, models for trading equities. You also need to be able to develop analytical tools and software.
- Perform statistical analyses: Your job as a quantitative analyst is to perform daily/regularly statistical analyses like risk analytics, loan pricing, default riskDefault RiskDefault risk is a form of risk that measures the likelihood of not fulfilling obligations, such as principal or interest repayment, and is determined mathematically based on prior commitments, financial conditions, market conditions, liquidity position, and current obligations, among other factors. modeling, etc.
- Do coding: You need to do coding also. That means you need to have sound knowledge in computer programming. For example, you need to do coding tasks for pattern recognition or machine learning.
- Model specifications: You also need to take care of model specifications and apply several methods for data collection.
- Testing: Your job would also be to test new models, products, and analytics programs.
- Collaborate: You also need to collaborate with mathematicians, computer engineers, and physicists to create optimal strategies. Collaboration is the heart of this job. You can’t do it independently.
- Consult: You also need to consult with people who’re in hardcore finance so that you can discuss trading strategies, market dynamics, and trading system performance.
- Present & interpret: Your job is also to present and interpret data results to clients and senior management so that they can be helped in strategizing further.
These are the main job responsibilities of a quantitative finance analyst. So you can understand how complex things are and perform these job responsibilities well, you need to know almost all the subjects mentioned above.
Quantitative Analyst Skill-sets required
Let’s look at the skill-sets required for the quantitative analyst. Of course, it’s a tough job. But if you have the following skills, you would be able to handle all the job responsibilities with ease.
Art of applying scientific methods to finance:
This is not as similar to the finance domain. This is tough. Because you need to figure out a way to apply scientific methods and software programs to hardcore finance, you would be able to do that if you have vast knowledge in advanced mathematics, physics & quants, and you also have experience in applying these methods in vast data. Your job mainly is to find a pattern and analyze the pattern via these scientific methods. With practice and knowledge, you would be able to perform well.
- Financial Modeling
- Portfolio Theory
- Financial Analysis
Alpha generation & risk management:
As mentioned earlier, the main objective of this position is to ensure that the risk of the clients has been reduced and the generation of profits has been increased. So how would one do that? By understanding the investment market better. That’s the reason it’s good if you have a CFA certification. If you have a CFA, the understanding investment would be easier for you, and you will be able to perform alpha generation and risk management effectively.
Risk Management Skills
- Knowledge of credit risk-products
- Equity & Interest rate derivativesInterest Rate DerivativesInterest rate derivatives are the financial instruments that track the fluctuations of the underlying interest rates. These underlying interest-bearing assets can be a single interest rate or a bunch of different interest rates.
- Fixed Income
- Monte Carlo Techniques
Technical skills (computer programming):
There’re many quantitative financial analysts who have the depth of knowledge in technical skills/ computer programming. Most specifically, they have knowledge of Python and C++. By understanding and applying their technical skills, they’re able to implement algorithmic trading strategiesAlgorithmic Trading StrategiesAlgorithmic trading is an automated buying and selling process with a programmed algorithm to determine the price, volume and timing of order. Algo-trading is a high-frequency trading technology that enables the exchange of stocks and other assets in the financial market.. Even they use these skills in complex funds like a hedge fund. So it’s mandatory to acquire computer programming skills to be able to thrive as a quantitative finance analyst.
- C++ (it’s utilized for high-frequency trading applications)
- Data Mining
- Java, .NET
- VBA MacrosVBA MacrosVBA Macros are the lines of code that instruct the excel to do specific tasks, i.e., once the code is written in Visual Basic Editor (VBE), the user can quickly execute the same task at any time in the workbook. It thus eliminates the repetitive, monotonous tasks and automates the process.
- MatLab, SAS
- Object-oriented programming
- Big data modeling
Effective Communication skills:
You need to have effective communication (mostly verbal) to deal with the team and many team members who are from different domains and help you achieve the goal of the firm – client satisfaction. For communicating well, you need to know how to listen to the people who are hardcore in their domain and can help you in your work to understand the pattern of a vast algorithm.
- Independent research skill
- Problem-solving skill
- Ability to work under pressure
Mathematical and Research skill:
This is of utmost importance, even more than knowledge of anything else. Many firms that need a quantitative finance analyst prefer to hire a research scientist than a finance guy simply because a research scientist has more knowledge and depth of research and can create, change and shift the algorithm as and when it would be required. So concentrate on developing the skill of research in scientific studies to be able to get considered for this profile.
- Linear algebra and differential equations
- Numerical linear algebra (NLA)
- Game Theory
- Calculus (differential, integral & stochastic)
- Probability & Statistics
Quantitative Analyst Salary / Compensation
There are many opportunities for quantitative financial analysts. But basically, if you’re QFA, you will be hired by hedge funds and investment banks. In some cases, you would also be able to find opportunities in securities, commodity trading, accounting companies, brokerage firms, commercial banks, and financial consulting firms.
But the big question is what the range of compensation is? Here’s the deal. According to the PayScale, the median pay of New York Quantitative Financial Analysts was the US $101,947 per annum.
In India, the amount is much lesser. It’s around the US $10,000 to $25,000 per annum for fresher.
According to Glassdoor, the median salary of a Quantitative Financial Analyst was the US $106,575 per annum. The minimum was the US $63,000 per annum, and the maximum was the US $155,000 per annum.
Your First Steps as a Quantitative Analyst
You would get surprised to know that schooling is not the first thing you should do to be able to become a good quantitative financial analyst.
The first step is to learn to think for yourself. Yes, there will be people on whom you need to depend on getting the work done, but if you think that you don’t agree with group-think, you need to go beyond the convention and break away. In this field, individual thinking is of utmost importance. Now, why do you believe it? Because it’s said by one of the top quantitative financial analysts in the world, Mr. Micah Spruill, Co-Founder of Aurora Investment Advisors.
The second most important thing to consider, according to Mr. Spruill, is to take a scientific approach in any problem-solving you’re involved with. Without a scientific approach, you won’t be able to view problems with fresh perspectives, and thus, the solution you would give won’t stand out.
Once you are confident about the above two, Mr. Spruill suggests that you need to have a little bit of eustress (healthy stress) to keep you going; otherwise, you may end up being an overconfident snob.
So take these things into account and go for great education and certification. The future of quantitative financial analyst has no bounds.