Q&A: Undergraduate -> Quantitative Trading Decision Process (Advice)

Hello Everyone! I just went through 3 long years of internships to go from being completely clueless about finance to learning the industry and landing a competitive job. Along the way, I got a lot of help from this platform and I want to pay that forward, so I’m doing an Q&A. ####About me: From rural midwest with no connection to finance, went out to target school (HYPS) for undergrad and studied stem. Halfway through school, decided I wanted to do finance and did a rotational internship at a top investment bank which was an opportunity afforded to me basically just because I had a high GPA (3.8) from a target. No networking, literally just applied to a bunch of finance roles junior year. I did an internship last summer at a top quant shop, got a return offer for $300k Total Comp but decided not to go back, but spent this fall (senior year) recruiting for a bunch of quant hedge funds/prop shops. Throughout this fall I got offers from: TransMarket Group, Five Rings, Jane Street, Two Sigma, Chicago Trading Company, HAP Capital, XR Trading, Anonymous, Citadel. Generally speaking, Total Year 1 Comp was 200-300k, and those companies are in ascending order in terms of Total Comp. (When I say total comp, I’m including Salary and Expected Bonus and excluded sign on bonus. Most firms would give me a bonus range like 100-150k, and I would assume slightly low end to be the average, 115k in this case.) The one listed as anonymous is the offer I accepted. ####Things I considered when picking industry/firm: 1. Comp 2. Culture 3. Location 4. Hours I decided to go into trading instead of IBD or PE mostly for hours. Working at a trading firm is going to cost you 55-60 hrs/week. IBD and PE, you’re looking at like 20+ additional hours per week. And despite this, pay in trading is as much or more. I decided to go quant buy side instead of sell-side because I think the work is more interested and the pay is a lot more. (Pay to go sell-side as a quant is about half of what it is on the buy side.) Finally, I want to note that recruiting for one of these spots is far from impossible. In general it does not require connections or intense networking. It doesn’t even necessarily require huge amounts of coding knowledge. ####A normal Full Time interview process would look like: 1) Call with HR (80+% pass rate) 2: One of the following three options. a) A call with a trader who asks you probability questions and presents you with a game that you need to solve for an optimal strategy. (Often times these are poker or dice games.) This is the most common, and the least difficult. Just speak out loud in what your approach to the question is and how you’re thinking and show you know how to think about expected value and probability. You don’t not need to know complex math or programming for this b) HackerRank: timed coding exam. These can be very difficult, and I failed half of the ones I had to do. c) Coding assignment: they would send some file with an assignment that you need to complete in python or C++, usually pretty basic and might take something like 2-6 hours. 3) On site interview where you meet with 3 traders and they ask you probability questions and fit questions. I want to stress: YOU DO NOT NEED TO KNOW COMPLEX MATH OR PROGRAMMING TO GET A JOB IN THE INDUSTRY right out of undergrad. If you have a firm grasp of Expected Value/probability, and don’t know the first thing about Machine Learning that is fine. In fact, you would probably earn more than the machine learning guys and gals.

Yeah I've started full-time but only for a few months. Most of it so far has been like training and shadowing so not too stressful. The work-like balance I think is some of the best you'll get in finance. I come in around 7am and leave around 6pm M-F. I've never been in on a weekend.

In terms of stress, I would definitely say trading is one of the highest stress per minute jobs, but the hours are fewer which was the priority for me. Making split second trading decisions are stressful. With this being said I'd say that quant jobs are less this way than other discretionary traders because you have algorithms making the hard decisions most of the time.

Nice. What would you say is the average tenure of people on your team?

I'm at one of the big tech companies right now, and my hours are very chill (maybe 3-4 hours of real work per day) with a total comp of about $150K this year. I don't expect this to last but compared to even college, I worked much harder back then.

I'm thinking of making the transition to finance in 2-3 years (for compensation boost) but my currently WLB is very hard to beat. Plus, I know there's longevity in my current path to not burn out.

I've been pretty lazy but I can probably run a business on the side with how much free time I have now. It's very weird...

Well, I went to a top tier school and I had a high GPA. That's what made people read my resume to start with anyway. Then in interviews I think I spoke my reasoning very clearly and showed that I know the math they want me to know (mostly probability stuff).

In terms of the first half of your question I don't entirely understand what you mean by "buy side S&T." Usually S&T refers to Sales and Trading positions in investment banks, where sales is more relevant.

In terms of skills for buy side trading, I'd say if you're looking for quant, which is what I wanted, then programming and statistics are most important. Doing a project that uses investing skills would be very smart.

If non-quant then finance/econ knowlcedge is most important I'd imagine.

Do people in quant shops care that much about the prestige of your undergrad/grad institution or do they care more about your performance on the interview and your GPA? Also thanks for the AMA!

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Yeah no problem. I'd say, once you've gotten an interview they really don't care about what school you're from or what your gpa is, but whether you can excel at the work and whether they'll enjoy working with you.

With this being said, getting an interview at top shops is really tough. I think you've got to do this either by having a stellar resume or knowing somebody at the firm. I do not think I would've gotten my internship at a top investment bank or at a top hedge fund if I hadn't gone to a top school. With this being said, once you've gotten that first interview they don't care anymore. I think that quant shops care less about the school you went to than other places in finance, but it still matters

Hi mate!

Cheers for the heads up! Would love to get in touch as I am aiming the same career path. I have less experience though. Only one quant HF, 2 buy side firms and an audit..

Finishing my Bsc at the moment and doing a MSc in Finacial later on (target school).

Cheers in advance!

Where these all for Quant Trading and not any type of research or developer roles?

For the Hackerrank style timed coding exams, is there any way to prepare for these? What kind of programming things (loops, dictionaries, syntax) does one need to know?

Thanks for the ama!

These were 90% Quant Trading roles, with 1 or 2 quant research roles in there, and none of them were developer roles. In my experience, developers are sort of treated as middle office at these firms and that's not what I wanted.

If you go to hackerrank.com they have a bunch of practice problems you can do. I guess that's the best way to prepare. You need to be able to quickly build a function which solves the specific question you're asked. One I was asked to build was, given two arrays of decks of cards 2 through Ace, arranged randomly, how many turns would it take to complete a game of war? So in this case, you need to be able to convert the array which is 2 through Ace to two integer arrays, then you need to use while or for loops to index through the array quickly until you have gotten all of the cards into one deck. That one I would say was harder than average. Another one I got gave me a data frame and made me build a multivariate linear regression on the dataframe which returned a bunch of relevant statistics.

Frankly, they could ask you just about any coding/math question on one of these so the only way to guarantee you pass is by really knowing how to code, but hackerrank.com can give you an idea of the sort of stuff you could be asked, though I find the actual questions are harder than the ones of hackerrank.com

Hi thanks for doing this !

Do you think quant trading will still be a great career to be apart of in the short to mid future (3-7) years?

Would it be advantageous to enter in coding or math competitions to stand out from the crowd?

Do you envision yourself as a pm at your current firm in the future or do you have other aspirations?

Yeah I think quant trading will grow for the next decade. It's already crowding out the discretionary financial space, and in most years making more money. Computers have taken away many jobs in finance, so I think that the best response to that is to be the guy that tells the computers how to do it.

Yeah I mean I think coding/math competitions would be good mostly because you would build the coding/math skills to blow away any interview you get. Being able to put "Gold Medal Math Olympiad" on your resume would help you get interviews.

Yes right now I plan on staying at this firm. I really like it and it's small enough that I think I'll reach desk head (PM) in the next 6-8 years. And that's one I'm looking for right now. Possible I switch firms, but I really like this industry and don't plan on leaving until I retire at his point.

I guess you'd need to be more specific what you mean by "quant-related role". I know a lot of Software Engineers switch into quant finance after a few years like secrethidden was talking about. If you have the skillset and can pass a hackerrank I'm sure they'd interview you.

If you're from a quite different field at a firm that isn't well known you might need to get a PhD or Masters of Financial Engineering before you get notices though, I can't really say based on the information you provided.

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Realize you might come from a quantitative background so learning probability and statistics was already embedded in your schedule.

For some one studying finance with limited exposure to math, probability and statistics, what do you best recommend to get up to speed on answering probability questions in the interview? Any books? Interview study guides?

Understand how to prepare for the coding exams but always wondered what is the best way to prepare for the probability questions that don't involve code if you don't have a math background. Thanks!

I'm gonna start by saying that, unlike IBD or sell-side trading or most roles in finance, the undergraduate major you have does matter. It is harder to get a job at a quant hedge fund with a finance degree than with a math or physics degree. (not impossible).

In terms of learning probability and stats, I honestly hadn't taken a stats class before interviewing, as I think a lot of it is sort of intuitive. Like you should definitely know about joint probability, and conditional probability like they're automatic. (I think https://www.khanacademy.org/math/statistics-probab... would be a good place to start). But beyond that, getting reps in past interview questions is useful. There are books on this, but I honestly mostly used questions like the ones provided on WSO and on a site like glassdoor. You should know basic probability about combinatorics and permutations as well as bayes' formula, but that is about as complex as it gets.

I think a reasonable bar is this: If I give you a deck of 52 playing cards, and you draw 4 cards out of the deck without replacement, what is the probability that all 4 cards are face cards?

If you can correctly solve this question within 5 minutes, then you have the basic foundation to enter an interview in terms of probability knowledge.

In terms of statistics knowledge, you should have a good idea what a sharpe ratio is, and how to convert an annual sharpe ratio to a daily sharpe ratio, and what a standard deviation/variance is. I think these are probably things you could cover over the course of your finance degree pretty easily.

Thanks for the ama. Why did you decide not to return to the firm where you summered? Also, what asset class do you trade in and how long is the non-compete that you had to sign, if any?

The firm that I summered at was super intense and I really didn't enjoy the culture. It was a huge firm running tens of billions of dollars and the roles were incredibly siloed. The traders didn't know where their edge was coming from and the researchers didn't know how their strategies were doing in the market. It was just like a big money factory where each individual person had very little impact and even less autonomy. I left $75,000 year 1 on the table to not go back. I preferred to go to a firm where I liked the people I would be working with and felt that I had higher upside.

I work on a fixed income trading desk, I don't want to be more specific than that because it is pretty niche, and I'm sure some of my colleagues are on this platform haha.

In terms of non-competes, a one year non-compete is pretty standard in the industry. I've seen them range from 6 months to 2 years, and on one occasion the firm didn't have a non-compete at all. If you leave the firm and they enforce your non-compete, you still get paid your salary for the period of the non-compete, and you are allowed to work at a non-competing firm. (This could even be sell-side as long as you aren't trading.) The particularly contract I negotiated does not have a non-compete at all, but this is pretty uncommon in the industry.

I guess quant analyst is sort of an ambiguous term.

A quant trader is somebody who manages quantitative strategies in the marketplace. This generally requires quick/important decision-making in which you decide when there is a time to divert away from what the computers are telling you to do. They often work on making new strategies as well, but the market exposure is what makes them a trader.

A quant analyst I guess would more broadly be somebody who does quantitative work to analyze financial phenomena somehow. I guess that quant analysts exist outside of trading? Kind of unclear, the title could be used many ways.

Yeah there are definitely back office roles.

There are the obvious ones such as HR.

But at larger firms there are also support staff who do normal trading work, such as making sure that our trade orders and inventories accurately reflect what we have and then confirming that with brokers that you interact with. Much like discretionary trading, accurate record-keeping is essential. I don't have any guess what the pay is. Maybe $70k or something?

Yeah, I did a little bit of interviewing for quant research as well. My impression was that the interview process was similar in structure, but often more difficult on the statistics/programming side and less focused on like gamblimg/risk taking teasers.

In terms of PhD requirements, I think recruiters sort of view it like, "We generally recruit Quant Traders after a few years sell-side. We generally recruit Quant Researchers after completing a PhD in STEM." With this being said, both will be happy to interview you straight out of school if your resume stands out.

My estimation is that ~65% of QRs have PhDs as top Quant Shops, as opposed to ~10% of Quant Traders having a similar degree. Hopefully this helps!

Great thank you! I am almost done with a finance phd and have a stem undergrad, both from top schools, so hopefully the resume won't be tossed for QR roles. just one more detail I was wondering: was it possible to complete hackerrank/coding tests in R? or just python/c++?

Hey man, thanks for this. I'm also at a target (HYP) but with a 3.5 gpa right now. Might get it to a 3.6 by the end of junior year. I'm studying econ with a minor in stats. What classes would you recommend I take to do get a position at one of those firms? I've done the general econometrics, stats classes. Was thinking of doing data structures next semester and a data science or probability theory or discrete math. Would appreciate your advice.

Honestly they won't look at the specific classes you take, but they will look at the major you have. Many of the top quant funds would prefer a hard STEM degree above an econ degree, but your minor in stats will count for something.

I'd say 3.5+ is still considered a strong GPA and will get you plenty of interviews from a target. In terms of what specific classes will help, I think programming and stats are best. Data structures sounds like a reasonable choice, some optimization class from the CS department would stand out.

could a 40yr old former excel monkey / discretionairy trader (state school econ major many years ago) who learns to code VBA and Python, thinks in basic probability all the time, then plays around on hackerrank, get your job?

how would they go about it?

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