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Thursday, February 01, 2018

What skills are needed to be a Quant?

On Hacker News, a user asks, what skills are needed to be a quantitative trader?

My answer:

From many people I have seen succeed and fail at being quants (in the high frequency trading realm, which is different in many ways than the derivatives analysis world), you don't really need any financial background, besides being a thoughtful and reflective thinker who has naturally wondered and thought about how finance works on the national, business, and personal level.

In fact, I don't think you necessarily need to have background knowledge of anything in particular. What you do need, absolutely, is the ability and interest to learn complex concepts and areas of expertise in a diligent and meaningfully insightful way. That is, you need to be something of a Feynman-type thinker, learning statistics and programming and the math of data analysis and algorithmic analysis truly from the inside out, so that if you taught any of it to other people you would be a phenomenal teacher.

If you're not quite sure what that means, consider teaching a statistics class by having the students work their way chapter by chapter through a statistics textbook. Now say that you randomly insert 10 errors in to the textbook: you switch one word for another, you misuse Bayes' theorem in an example, you forget to adjust sample standard deviation to student sample standard deviation, you leave out a crucial paragraph of explanation in a lecture, etcetera. And you don't tell students to anticipate this and point it out.

How many students at a place like Stanford would catch most of these errors or omissions and speak up about their confusion? How many students would already be putting in the consistent, focused, diligent effort so that they could be reasonably confident the problem wasn't just in their laziness or inattention? How many would care so much more about understanding the material than about potentially embarrassing themselves to interrupt you in class?

If you taught that class 10 semesters in a row, in all that time I doubt there would be more than a handful of students who met that standard. If you took those students, with no particular background in finance, math, computer science, or statistics, and put them to work as a quant, it's highly likely they would succeed.

Whereas if you took students who never would have raised a question about any of those errors or omissions and gave them years of experience in all those areas, it's highly likely they would not succeed as a quant.

Of course, you certainly will need to rapidly develop a background in these disciplines, but you'd be surprised how quickly a focused study of finance allows you to surpass the financial knowledge of many professionals.

(Background: I worked as an algorithm developer at a major high frequency trading company for 6 years. Some of the most valuable employees, who generated tens of millions of dollars of value for the company, started with only spotty knowledge of finance, statistics or computer science.)

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