Trading and Mental Arithmetic
Do traders really need to be able to multiply numbers like 47x38 in their head? Any advantage to being a human calculator as a opposed to just being very swift with a calculator and/or computer software? Is this just an interview screen?
I was asked 13x17 in my interview and got it fairly quickly and accurately, but I still needed to say a number or two out loud. I'm a quick thinker, but not faster than someone with a calculator, especially when processing dozens of operations.
Figured I should start learning some vedic math if it's going to give me an edge once I start working.
I also imagine this would depend on the product? Any stories or insights would be appreciated.
mental math test for trading interviews
Our users shared that while mental math is helpful on the job, it is certainly not critical as you will always have calculating devices on hand. The point of asking these questions is to test mental agility and weed out candidates. Our users shared their thoughts below.
Mental math questions are mostly to weed out the massive number of applicants trading firms get. It is necessary to be quantitative, but no trade is going to depend on doing 42*28 in your head.On another note, saying your calculations out loud is good because it shows your thought process and gives you a few more precious milliseconds to do the problem.
Mental math shows your mental agility. It doesn't mean you will be a good trader. Being a good trading is about intelligence, strategy, controlling your emotions and luck etc.
Usefulness of Fast Mental Math on the Job
User @Bondarb", a hedge fund partner, shared how mental math helped them on the job:
trade mostly fixed income and I find it is helpful, but not necessary, to be able to quickly add and subtract numbers with two decimals in my head quickly (like 252.86-135.37) but other then that i have never felt the need to do any higher level mental math. I have always been much more verbal then quantitative (ie standardized test scores, etc) so as lame as it sounds I actually had to practice to be able to really add and subtract numbers such as the above example quickly in my head. I actually made myself an excel sheet that would spit out random numbers and would practice for ten minutes per day until I could do it like second nature.I
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Interviewer mightve been looking for you to do 13x17=(15-2)*(15+2)=225-4
i dont see how vedic math could ever be necessary on a trading desk.
I"m curious as well. Could this dude be a good trader:
http://www.ted.com/talks/lang/eng/arthur_benjamin_does_mathemagic.html
BTW, since 17 x 13 have the same tens digit and their units digits add to 10, you could add 1 to one of the tens digit, multiply it by other tens digit, then just multiply the 2 ones digits. So since the tens digit is 1, increase it by 1 to 2, multiply it by the other tens digit (1) and this gives you your first number which is 2. Then multiply the two units digit, attach it to your first number to get 221.
Tough to explain in text but try it out with 24 x 26 as an example. 2+1 = 3. Now multiply that 3 with the original tens digit (2). Your first number is 6. Now multiply the 2 ones digits and attach to get 624.
I trade mostly fixed income and I find it is helpful, but not neccesary, to be able to quickly add and subtract numbers with two decimals in my head quickly (like 252.86-135.37) but other then that i have never felt the need to do any higher level mental math. I have always been much more verbal then quantitative (ie standardized test scores, etc) so as lame as it sounds I actually had to practice to be able to really add and subtract numbers such as the above example quickly in my head. I actually made myself an excel sheet that would spit out random numbers and would practice for ten minutes per day until I could do it like second nature.
Mental math questions are mostly to weed out the massive number of applicants trading firms get. It is necessary to be quantitative, but no trade is going to depend on doing 42*28 in your head.
On another note, saying your calculations out loud is good because it shows your thought process and gives you a few more precious milliseconds to do the problem.
Mental maths show your mental agility. It doesn't mean you will be a good trader. Being a good trading is about intelligence, strategy, controlling your emotions and luck etc. But anyway, That guy is good, if the show is not staged. 2426 = 25^2 -1 = 625 -1 =624.
4738= 5038 - 338 = 1900 - 114 = 1786 4228= (40+2)(30-2) = 1200 -20-4= 1176 I can do 3 digit multiplication in my head fairly quickly, but definitely not 5 digits. Is there any tricks out there that helps you with more digits multiplication? or is he doing it this fast w pure mental power? Anyway I am pretty impressed.
The guy in the video was using some word system with that huge number he was calculating. I remember thumbing through a mental math book at Barnes & Noble once and one of the chapters explained how to use certain words with certain vowels to keep big numbers in your head when doing larger calculation.
Try the Trachtenberg System for Speed Mathematics (a book).
For multiplication is works like this:
624x38
4x8 = 32 so first digit is 2 (carry 3)
2x8 = 16 + 4x3 = 12 + 3 (carried forward) = 31 so second digit is 1 (carry 3)
(6x8) + (2x3) + 3 = 57 so 3rd digit is 7 (carry 5)
(6x3) + 5 = 23
so answer is 23712
For some sums this is a little slow. But if you know your 1-12 times tables to the point where its not something you think about, you just see the answer and you know this method extremely thoroughly, you can work out a question like this quicker than the traditional method. It takes a shitload of practice to get so familiar with the system, but if you really want to excel at speed maths, its a great book.
This method would also work for say 12534553296837295x78.
it helps if you can do 'simpler' calcs in your head
Ie for options trading the calc you will be doing a lot is taking 1% of delta notional and calculating avg delta of move * size of move
if you can do large (ie 5 digits) addition/subtraction and 2x1,2x2 and 3x1 multiplication faster than it takes time to reach for a calculator and do it then it makes life easier.
However it is by no means a requirement, some guys on the derivs desk use calcs some dont.
Try calculationrankings .com
Chip
Why trader have to be good at mental arithmetic (Originally Posted: 12/20/2012)
With the latest technologies. Why does some traders consider mental arithmetic an essential skill to be a successful trader?
Don't work on a trading floor but we have dealers on my desk and I interned in trading. Mental math is important, but more than anything you need to be bloody good at analysing large data and seeing patterns.
Sanity checks.
I've always wonder this as well, especially if there are hundreds of thousands of dollars on the line. Wouldn't you want the numbers verified as much as possible with I dunno a calculator at least and not rely on someone's mental math abilities when it comes time to pull the trigger on a trade.
Mental math is faster in some trades. If you are trying to asses the value of DEL cargo from one location in relation to another (say taking FOB a nearby location, adding freight and other fees), I could probably punch that number out in my head faster than opening my desk and getting out a calculator.
Also and more importantly if your junior guy can't even add/subtract numbers in his head together, why the heck would you trust him to book your trades.
Recognizing if something looks right can help spot errors or opportunities that other traders may overlook. And that means profit or loss. Computers are only as good as the data in.
Rubbish in = Rubbish out.
It is always worth looking at information and knowing how you can calculate it from first principles.
If a program calculates 300 x 100 and the answer is 300,000; you should see something wrong very quickly.Does it look right? Did the data input put a decimal point in the wrong place?
Break it down;
3 x 100 = 300
30 x 100 = 3000
300 x 100 = 30,000
So how to get better at mental arithmetic? Breakdown the sums into more manageable figures, and practice, practice, practice using your mind, and with pen and paper. Use your calculator only to double check.
Because computers fail, systems break down and market does not wait for you.
I trade options, and even with all the modelling done in computers, having mental math skills is very important.
For example, let's say I hear o/n AUDUSD is 10% bid, I immediately think what the b/e is (2bps102) 40 bps, sounds high, yours. Being smarter than others is definitely important, but being quicker than other people can be just as important, even in the more OTC products.
It's also very good to quickly figure out PNL, and run simple scenarios in terms of risk-return.
Tbh, depends on the product I think. On the cash equities desk you really need it, I work on a vanilla options desk and tbh i was great at mental math when i started and now rely on the calculator for everything. This is mainly because you get quite quick using a calculator, and its actually a bit faster because instead of focusing on mental maths you can use those seconds to think about something else, while the calculator does the work for you. You might be a bit faster mentally if you get really good, but the calculator isnt so much about speed as it is freeing up your mind. When you are pricing something you need to think about so many things (ie are we inline with divs, where is spot, where is vol, where is the skew, can i get borrow for the stock etc), that not having to think about doing mental calcs is just easier. Its a useful skill, but not essential for a lot of desks.
Practical situations of mental arithmetic in trading? (Originally Posted: 11/20/2014)
I'm just a dumb Economics major, but I'm pretty good at the type of mental arithmetic you would find on Tradertest
But whenever I do a google search on terms like "trading mental arithmetic math" nearly everything I find is related to job interview questions.
Can anyone name any practical situations in live trading where mental math (of reasonable difficulty) is applicable?
(as best I can tell, it seems to be mostly related to options and futures, and the speed in being able to quickly calculate between two prices/levels/whatever before the rest of the market reacts too much)
There was a previous related thread from about 2011, but not a lot of examples (I'm too new to link to it)
Something that's common in my realm of physical trading is to quickly calculate freight arbs/basis when looking at bids/offers in broker wires.
Thanks, actually your post from a while back where you said "the value of DEL cargo from one location in relation to another (say taking FOB a nearby location, adding freight and other fees)" was the kind of example I was looking for.
(I can't post a link to the thread in this website because I'm too new here)
(BTW, not ot get off-topic, what is DEL? I couldn't find that in the list of incoterms)
Fairly certain what blender is referring to, and please correct me if I'm wrong, is an FOB deal where we're chartering and insuring, versus a CIF deal where we're not taking liability until discharge, and determining whether we can get our own ship (in the FOB deal) for cheaper than what the c/p is quoting us on a CIF deal.
Another place where arithmetic is useful is if you're buying/selling options tied to a price that is not where the underlying is currently trading, especially if you're hedging all your deltas.
market making in an open outcry environment or even an electronic market making role where brokers blast out orders in chat rooms, having quick mental arithmetic is absolutely crucial. Remember, the first guy to make the best market gets the trade.
What Kind of Position/Job is Best Re: Mental Arithmetic/Calculation? (Originally Posted: 07/14/2015)
Hi,
I'm an unemployed Cambridge maths graduate, completely new to this sector. I was wondering if anyone could give advice as to which financial jobs would really love someone who is excellent at fast and accurate mental arithmetic/calculation. I won the bronze medal at the mental arithmetic world championship last year, and suspect that there must be /some/ kind of financial role that would highly value my skills, but Google and other searching just gives me very vague results, and people asking questions about "how do I improve at things like 23 * 11 for job interviews", rather than discussing the relevance of mental calculation in actual financial positions.
Anyone got any good pointers or know any places that might be good for me to look for further information? I live in the UK if that's relevant.
Thanks in advance.
quant/actuary
Definitely not quant/actuary; those look for advance math, not arithmetic. Some trading roles will ask you that on interviews; look at the Dutch-esque prop shops for this sort of interview in particular (e.g Optiver, IMC, Flow, Tibra, etc)
Trading
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