What Is Quantitative Finance?
Quantitative Finance is the integration of various disciplines in different proportions to yield a unit of finance that deals with some specialized areas. These disciplines are Mathematics, Statistics, Computer Science, and Finance. Quantitative Finance is thus a model that is a result of a mixture of these disciplines that deal with large datasets. The field of quantitative finance analyzes financial securities such as pricing of securities, risk management for financial products, portfolio management, etc. It is a field that requires the application of concepts rather than academic knowledge. So, today, we’ll see- Is Quantitative Finance a Good Career?
Careers In Quantitative Finance
To understand whether or not Quantitative Finance is a good career choice for an individual, they must primarily understand the career opportunities available in the field of Quantitative Finance. A few of these options are listed below to give you an understanding of various careers in Quantitative Finance.
- Risk Manager
As the name suggests, a risk manager is responsible for managing existing risks and potential risks in a business environment. This job involves the management of risks that the company’s employees, customers, assets, and the company itself might be exposed to. The risk manager could be working in areas of financial or operational risk management. The knowledge of quantitative finance and its tools is necessary to perform the duties of a risk manager. Areas, where these tools could be used, are:
- While assessing the risk in business continuity
- Any financial or technological risk assessment and management
- Risk management for corporate governance etc.
The tools that can be used to assess and evaluate risk in these areas are- Root Cause analysis, SWOT analysis, Probability, and several others. The areas of quantitative finance that are used in these tools are statistics, mathematics, engineering, and science. The compensation for this job is directly proportional to work experience in a similar business environment. After some basic experience of five to six years, risk managers can expect an average salary starting from US$55,300 up to US$127,000.
- Quantitative Developer
This job is often compared to that of a computer programmer. These developers develop financial modeling solutions to serve the quantitative trading industry. The job of quantitative developers includes deriving solutions for complex trading problems through mathematical computing. These programmers should have knowledge of Java, C++, Python to provide solutions in investment banking, hedge funds, and brokerage firms. Financial accounting is an integral part of a quantitative developer’s job as they need to be proficient in statistical analysis, database management, and software systems. The average salary for a quantitative developer is US$134,572.
- Derivatives Trader
A derivative trader needs to be prompt in decision-making. This discipline requires instant responses, thus such a trader may not necessarily require an in-depth knowledge of pricing model software but they do need to be spontaneous and adapt in evaluating risks and rewards.
Mathematical skills are an important part of this job. Derivative traders also manage the liquidity of a firm to ensure the availability of good options of purchase and sale at various levels in the firm. They also manage volatility to buy and sell financial products. Their earning potential is approximately between US$36,100 and US$131,700. Derivative traders also receive annual bonuses based on performance and other incentives.
- Asset Manager
An asset manager manages the assets of the company and its employees according to the subjective needs of the customers as well as by the company’s goals and objectives. They are required to develop and maintain client portfolios. They supervise the budgets and other financial reports. Thus, asset managers should possess strong analytical skills and be detail-oriented. They need to be highly trained in mathematics and finance. They manage financial assets, goodwill, human capital, and other intellectual properties. Asset managers enjoy a salary of US$43,600 (lower end of the average) to US$109,120 (higher end of the average).
- Fund Manager
Fund managers typically supervise funds to maximize profit. The requirement for fund managers has increased over the past few decades. They are expected to have in-depth knowledge of the market and monitor it continuously. They try to predict market trends accurately to develop different methods to manage the client’s funds and bring back the best return on their investments.
Thus, they need to be familiar with accounting, portfolio management, and fund administration. They require quantitative finance knowledge while dealing with cash flow analysis and risk management tools such as stress testing and other risk metrics. The average salary for a fund manager in the United States is $71,800 and it can rise as high as $172,000 per year as well.
- Consultant
The job of a consultant is a suitable one for a person with knowledge of quantitative finance. Consultants are required to have adequate knowledge of statistical analysis. Their job roles may vary, from providing general consultancy services in consultancy firms that target a specific area of the business world such as Information Technology, strategy formation, etc. They make use of statistics to develop solutions and use computer models to test their viability according to the client’s situation.
Further, they implement the agreed strategic solutions after assessing their pros and cons. The average salary of consultants in the United States ranges from US$40,100 to US$107,000. They have various opportunities to earn bonuses through client satisfaction and achievement of the company’s targets.
How To Decide If Quantitative Finance Is A Good Career For You?
- Interest In Mathematics and/or Computer Science
People who have a significant interest in these fields are more likely to be suitable for quantitative finance careers than others. They tend to be more rational and rely on statistics to consider conclusions. They also tend to be relatively more scientific in situations and act methodically. A large part of the jobs in the field of quantitative finance involves dealing with large databases and complex software.
Thus, good quantitative skills such as math and computer programming come in handy when it is time to build mathematical models and form strategies in a dynamic environment. To build a career in quantitative finance, one must be proficient in excel and statistical analysis. Most companies require candidates in quantitative analysis to be familiar with C++. Some competent candidates also learn other programming languages such as Python, SQL, and Java. In addition to that, one must evaluate their interest and understanding of analytical software such as SAS.
- Good Communication Skills
It is not a job that requires the formulation of strategies and building mathematical models. Few job profiles require their employees to cater to the subjective needs and want of the customer. In such cases, the quantitative geeks are also required to have efficient communication skills. They need to make the customer comfortable and understand their needs. A good employee would be able to explain the scenario and the multiple strategic solutions available to the customer in a simple language instead of a technical one, which is simply Greek to some. Making an excellent model or cracking a solution to a complex problem is not enough.
Along with an analytical mind, quantitative finance wizards need to build internal marketing skills. It is essential that one can effectively communicate their model to superiors to ensure its adoption and implementation. It is the combination of attaining expertise in math and computer science along with communication skills, that allows the fruits of hard work to be utilized.
- Financial Motivation
Those who are passionate about quantitative finance would find this job to be immensely satisfying for their intellect. However, that is not all, as it is also financially rewarding. Some of the jobs that are available to people with an understanding and training of quantitative finance, along with their approximated average salaries have been mentioned above. Through these figures, you will get a close idea of the financial compensation that this field offers.
The good salary figures may attract more people to this field and it will motivate those already working in it. Within the United States, New York offers excellent salary figures for those wanting to pursue quantitative finance with an average salary of US$111,071. Other major financial cities across the world that are desired by those working in this sector are Paris and London with average salary figures of US$93,681 and US$80,295 respectively.
Some FAQs regarding careers in finance and their suitability for you have been answered below:
- Are you comfortable working with mathematical models and statistical tools?
A large part of your career in Quantitative Finance is devoted to making analyses and reports based on the use of statistical tools. Your job will constantly require you to work with mathematical models as well as develop them. Thus, you must ensure that you have a good absorption capacity for the same.
- Does Quantitative Finance open doors to front-office or back-office jobs?
The requirement of Quantitative Finance skills has increased in both, front-office and back-office jobs, due to the challenging nature of work. The front-office jobs involve direct interaction with traders and an active engagement with pricing models and trading tools. On the other hand, back-office jobs in this field are more focused on building new trading strategies, creating solutions to complex models, and conducting research for risk management.
- How much can one expect to earn from Quantitative Finance?
The compensation levels vary on factors such as experience, flexibility to move for work, etc. A wider picture of different compensations offered for various job roles in this field is shared above.
- What are the educational qualifications required to build a career in Quantitative Finance?
In such a competitive job environment, most firms require a Ph.D. in one of the disciplines of Quantitative Finance, which are mathematics, economics, statistics, or finance. Most people who go for an MBA, choose a specialization in finance or statistics. In addition to that, they update their resumes with certifications such as CFA (Chartered Financial Analyst) and CQF (Certificate In Quantitative Finance).
- Is Quantitative Finance hard?
To decide if Quantitative Finance is a good career choice for you or not, you must be aware of your passion and interests, as understanding finance is not the same as building models for risk management or insurance review. They have added complexities. Thus, evaluate your interest and educational background before picking a career choice.
Conclusion
Thus, if you are interested in the above-mentioned job roles then studying quantitative finance and learning it on an advanced level will help you in building a career in finance, as all the jobs mentioned above need quantitative finance skills in some capacity or another. In addition to that, try to match up to the level of a competent prospective employee in this field by gathering the mentioned skills.
Most importantly, before you begin to analyze strategies, you must evaluate your interests and choose your career path wisely. Quantitative finance offers great job opportunities and a variety of job roles. It also offers multiple career growth and personal development opportunities. Therefore, it is accurate to say that quantitative finance is a good career option and a person who is fit for the job and has an interest in the job can achieve a lot in this field.
