Mathematical Competency For Trading
Hello folks.
I could not find any recent information on this so here it goes.
I’m an incoming S&T rotational graduate at a BB bank. I have a Masters in Finance from a target mainland Europe university. I would not say I am gifted at Math whatsoever albeit my academic credentials would lead one to believe otherwise. I have been good enough with math to get by and have a good understanding of markets relative to me peers.
My question for my fellow monkeys is:
I see many traders that have physics degrees, maths degrees, engineering degrees. If I am to go into trading, what desk do you think would potentially best suit me? Cash equities and linear products would be the most straightforward I think however I want to ensure career longevity.
Can someone advise me on this?
Sales does appeal to me somewhat however I feel that it would be preferable to start in trading.
Am I overestimating the level of maths necessitated to succeed in trading?
Thank you in advance.
You'll be fine on any desk tbh. If you've got decent grades in college level math you'll be fine. Anything crazy there are quants to help you.
How math-intensive is commodity trading?
Not as much as prop trading but a firm numerical understanding is almost always a prerequisite. Seen a lot of commod shops require a decent understanding of a programming language too - though nowhere near as much as you would need for a SWE gig obviously.
Can you elaborate on which prog. skills and languages are the most commonly required?
The order from most to least quantitative are power, gas….. big gap…. Oil, products. And in my experience it is more programming than math per se.
I have a close friend who is a Rates Trader at Goldman, studying Economics and Finance. He said for Rates in particular, huge emphasis on computer and software engineering skills, then closely followed by Physics. I don’t remember him ever highlighting a need to work on Maths skills the way he does programming skills. Hope this helps!
As someone who did Banking / PE and beyond, I can say that anecdotally all my trading friends had a ton of math-focused questions during their interviews. Hard to say whether they needed it in their actual job but certainly was a big part of their interview process.
Banking, Private Equity, and beyond 🚀🌙
Thanks for the contribution mate.
In my early career, NO traders had math degrees. ZERO. Hell, half of the commodity guys didn't have a college degree and a couple (VERY SMALL) number didn't graduate high school.
To Oil_Quant's point. Power and gas (Especially power) is very quantitative, but in my mind, there is a HUGE difference between quantitative and mathematical.
For example, understanding the chart below is quantitative, understanding the MATH behind the chart is mathematical. In other words, understanding how temperature, pressure and other items affect your power plant, makes you a better trader, can structure a better deal and even make you a better gas buyer.
Same thing with the chart below.
I can be a quantitative person and understand WHY prices are different and how to take advantage of this, but a mathematical person determines the HOW of this price movement through things like PROMOD, Monte Carlo, other deep math things.
I can GUARANTEE you that being able to look at Black options and implicitly understand what a $1 price move will do to the option premium requires zero math. Building and modifying a Kirk closed form solution to fit a market with NEGATIVE underlying prices requires a whole lot of math (and a little bit of a jump diffusion model!)
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