Actuary to Trader?

Hello WSO,I'm an early 30s fellow actuary with an undergrad in math/finance/stats/econ with a 3.6 CGPA from a top 20 globally ranked school currently completing a masters in computer science part time at a top 10 ranked school globally for CS. I have ~10 years of experience working in predictive modelling/data science basically pricing insurance contracts/risk.Lately I have been thinking a lot about some of my other passions like quantitative analysis, trading, data science, and software development and wondered if WSO might be a place to come to ask professional quants or traders if I am being realistic in having this career aspiration to make this switch so late in the game.My reasons for wanting to switch into quantitative analysis / algorithmic trading is my passion for algorithms, financial markets, and the desire to make (a lot) more money. I currently make about $150k salary plus a 20-30% bonus and work about 30-40 hours per week.Does my candidate profile sound like a good fit for the roles I'm interested in? What sort of hedge funds or prop shops might be likely to hire me? What steps should I be taking to gain more experience, education, or extracurriculars in order to facilitate this transition if I'm not directly competitive in this labour market yet? For example, I was thinking of working in model validation in a bank for a year or two as an intermediate step to highlight my quant skills. Also, let's at for sake of example that an opportunity came up for me in FX trading. Looking at the compensation for FX traders in my city it seems like it would typically be less than what I am already making. Would working as an FX trader in the short-term at a lower comp likely help me to land a more profitable opportunity as another type of trader in a couple years? How is FX trading viewed in the algorithmic quant trading community? Also, I heard that FRM+MSc+Coding is really in demand in investments/banking. What does this combo lead to?

Thanks!

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Comments (5)

Most Helpful
  • Manager in Risk Mnmgt
Jan 27, 2022 - 9:14am

I can't answer all of your questions, but I think I may be able to help a bit. (Disclaimer, these are just my opinions and experiences. I don't pretend to know everything and every situation is different.)

I spent the first year or so of my career as an actuarial analyst in the P&C space. I worked at a small mutual company that employed maybe 200 people, and had no name value whatsoever. I moved from there to a midsize commercial bank (60 billion in credit exposure) in credit risk. After a couple of years, I moved from the commercial bank to a tier 1 investment bank working in investment research. I now get invited to the traders' daily meetings, email with them on a daily basis etc. I think if I wanted to and worked hard at it, I could move to a trading role in 1-2 years. 

Things I've learned: 

  1. You can definitely shift careers, but it might take you multiple job moves. 
  2. There's a pretty serious difference between "mathematically competitive" in actuarial science, and "mathematically competitive" as a quant in high finance. Its not that weird to see people with PhDs from ivy league schools focused in physics/engineering/applied math filling front office quant roles. I don't know where you fall on the spectrum of quant ability, but I would predict that people will expect you to use more of your quant horsepower in finance than they do as an actuary. 
  3. As you hypothesized, you'll potentially need to take a base pay cut or move to NYC/London/Hong Kong/LA/SF/Chicago. Not sure what kind of city you're in, but 150k would be a pretty high base for a newish quant outside of the really big cities. (Assuming you're not managing a team or anything). Most of the jobs are in those cities anyways though, so kind of a moot point. 
  4. Your work life balance is probably going to go to shit for a while. I worked 60-70 hours most weeks during my time at the commercial bank with spikes up to 80. I could have worked less and gotten away with it, but I wanted to move up or lateral aggressively and I felt like I needed to learn/adapt very quickly. 

Sorry this is getting long, but what the hell. Some questions for you:

  1. You're a fellow, is that through the SOA, CAS, or a non-US based society?
  2. What is your actuarial specialty? (Life, Health, Annuities, Pensions, all P&C, Auto Only, etc)
  3. Exactly how much more money are you hoping to make? Are we talking Citadel quant type of money? Or just a significant raise (say 50-100k in base and a slightly better bonus cut)?
  4. How's your tolerance for stress? 
  5. Do you manage anyone in your current role?
  6. How much WLB are you willing to give up?
  7. Do you work in consulting or in house for an insurance company?

Final thing, was the FX role with Maverick Trading or similar (I think T3 might be the other shop I'm thinking of?) If so run like you're Usain Bolt my guy. Those "shops" if they even deserve to be called such a thing, require you to put up your own capital and are essentially glorified pyramid scams. They "hire" in most midsize cities that I'm aware of. It would likely hurt your resume (and bank account!) to take a role there.

Jan 27, 2022 - 11:32am
random.actuary, what's your opinion? Comment below:

Thanks for your reply. This helps quite a bit.

So I'm an FCAS working in P&C data science. I work for a large multinational insurance company. Yeah, I guess I didn't have a specific amount in mind I was just hoping that compensation in high finance would be more related to my technical skills. 50-100k bump in base and a slightly bigger bonus cut sounds fine. There's definitely something to be said about the quality of life on the actuarial side and if I'm going to work significantly harder or longer I would ideally want it to be a pretty material jump in terms of compensation (in the medium term+).

My stress tolerance is okay. I work in insurance so career wise I'm not accustomed to a lot of stress. I would say normally I'm a pretty cool cat. I don't mind fast paced but as you pointed out fast paced is defined differently in the actuarial versus the quant world.

I don't manage anyone in my current role. I do mostly Python/R programming and machine learning. As an actuary I tend to be on the stronger side in terms of my technical if not my social skills.

I'm not sure how my quant skills would stack against other people in high finance but I do peruse the mathematical finance literature to some extent. I looked at the reading list on QuantNet and none of that material seems inaccessible to me it kind of left me wondering like where is the hard part / actual quant material. I'm sure it's more complicated in practice though because from what I hear the models discussed in books like that are more introductory or toy models.

No, I was asking about FX because I have a family member who is a professional FX trader but he's in management on the sales side and is not too technical if that makes sense.

I think maybe even quant research from what I've been reading could be a good interim fit for me but I'm not sure if I'm qualified for that credentials wise. I looked at a job posting for an automated market makers group and that sounded like a position I might enjoy. Do you think something like the FRM would be helpful to bridge the gap first to quant risk and then potentially to algorithmic trading after that or is it not necessary? How strong do you think the FCAS + MSCS combo is on its own?

I guess there's probably a range of quant risk related roles that would be interesting to me in the short term. Part of my reason for wanting to move is to obtain increased mental stimulation from my job. But I guess it's a trade off between increased complexity of the material which is a definitely plus for me, and the hit I would take to my quality of life because I do definitely value my free time. Would you say that in quant risk a lot of your job is highly routine and formulaic? Just applying the same standard models over and over again? Or is there a variable, more creative, research driven/innovative aspect to it? And would I be eligible for such activities in the quant risk world given my credentials/experience. I guess that is among my primary interests.

Thanks!

  • Manager in Risk Mnmgt
Jan 27, 2022 - 1:17pm

There's a lot to break down here, but I'll do my best. 

Neither of my finance roles have had "quant" in the job title, I'm kind of a hybrid between a finance guy and a quant guy. So a lot of what I'm telling you is just my observations from working with quants (and interviewing for a couple of real quant roles). Please take it with a grain of salt, and hopefully if I botch any part of this someone smarter will come along and correct me. 

Lets talk about risk quant roles first. Risk is going to be similar to the actuarial field in a lot of ways. Maybe slightly higher stress, slightly worse hours, but not too far off. Subject matter will also be similar. There's a hierarchy to quant risk roles. In my opinion, it goes like this: Tradefloor risk/Desk Strat, Credit Risk, Stress testing, Model Risk, Operational Risk. I think you'd have great odds applying for any of those except for a Desk Strat / Trade Floor role. Even then your odds probably wouldn't be horrible, it just depends on the bank and hiring environment. 

Trade Floor risk or Desk Strat roles will be on the trade floor, usually assigned to a non quant trade desk, and are tasked with building/running models to help traders boost PNL. High Stress, fast paced, high pay, competitive qualifications needed (prestigious masters /PhD or prior trade floor experience) and trade floor hours. Basically, you're the assigned math guy for a group of traders. By all accounts, probably the most exciting risk work. I'm sure some of those guys are floating around WSO and can give you a better summary than me.

Credit and stress testing quant roles are next up in the hierarchy. I'd lump market risk into this tier as well. Depending on the bank, I think these can all move around as far  as which one is most important, highest pay, etc. Qualifications, hours, and stress can vary wildly depending on the bank you're working for. The commercial bank I worked for (in a lowish cost of living area) would hire stress testing quants for 80-115k base with a masters degree (doesn't matter which school) and a couple of years of loosely related experience. 5+ years of experience in the same group would be 130-160k base. Beyond that you pretty much needed to manage people to get more money/raises. SVP (10+ years of experience and some management experience required) pay was 180-250 base  Hours were 40-50 a week, and stress was pretty low most of the year. I'd imagine bigger banks pay a bit more, but also have tougher qualifications and higher stress. Stress testing work can be annually cyclical in nature given CECL requirements and deadlines. Credit work can involve a lot of reporting and portfolio monitoring, which can either be very exciting or very dull. Exploring new credit models is fun though. I don't know much about the day to day of market risk, but I'd imagine its the least repetitive of the 3. 

Model risk is kind of a weird one. You need to have a good understanding of academic statistics, but you will often be viewed by other risk groups as just in the way. In my experience, model risk personnel generally fall into one of two groups, either they don't have the emotional and business intelligence to succeed in a risk role closer to revenue generation, or they're the nicest people in the world and have more interest in academic statistics than maximizing compensation. I've met several of each. Model risk generally reviews all models in use by a bank, and approves new models before they go live. Worse pay than credit, stress testing, or market risk, but way lower in stress and qualifications. Again, to use my previous bank as an example, they would hire model risk analysts straight out of an undergrad for 55-65k. Work can be repetitive since you're validating the same models over and over again in a rotation. 

Operational risk is where hopes and dreams go to die. Thankfully, I don't think I've ever seen an operational risk role tagged as a quant role. Usually they're posted as a "business intelligence analyst" or similar. 

Non-risk, front office quant roles (quant traders and similar) are going to be the apex of stress, hours and qualifications. Someone like Citadel will pay entry level quants 300+ a year in total compensation, but along with that comes a high bar. A lot of MIT, Princeton, Columbia, and Carnegie Mellon on resumes there. A lot of hours, and a lot of stress. A bad model can get you fired kind of a thing. As far as your odds, I'm not entirely sure. Quant hedge funds generally look for people they believe to be exceptionally high IQ. You can communicate that in a lot of different ways, it just depends whether or not you can catch their eye. Again, someone else around here may be able to help you more than I can. If you do get a quant hedge fund interview, expect a high pressure skills test as the first step. They'll try to test your mental math, problem solving ability, and maybe even programming ability all under time constraints. 

I'd probably apply for a couple of jobs with the FCAS and Masters combo you currently have/are working on before going for any additional certifications. My guess is you'll get some attention as long as your resume is clean and you interview well. 

Edited for grammar. 

Jan 30, 2022 - 1:15pm
random.actuary, what's your opinion? Comment below:

Thank you so much for your help. This is really a great overview of the quant finance ecosystem/ecology.

And as you say, it's one thing to have theories in practice quite another to have material capital in the balance in a live trading situation at the frontier of risk.

I think actuarial science in the data science sense allows for some degree of innovation if you'll tolerate the oxymoron. But I think high finance allows even more room for that.

What's interesting is thinking about how to use those degrees of freedom wisely.

I have a lot of views on this sort of subject many of them still amateur and high-level gleaned from a variety of material at least one degree of separation removed from the real thing. It would be interesting to get more involved in this game as I love the idea of statistical arbitrage or for that matter how about HFT arbitrage although I must train my mind to have a healthy degree of skepticism in a context noted for its abundance of brilliant adversarial tact.

Thanks again for your insight this has really opened up my lines of reasoning about different potential attack vectors breaking into these sorts of careers and what to expect.

Look forward to continuing our conversations as I have more to say on the matter without hopefully risking trailing off into too much redundancy.

I think once I hammer the keys of my random desktop automaton I will hopefully have a CV that claws back potential idle misnomers about my non-traditional path. It would be cool if you could maybe give it a once over when it's ready and let me know if I seem to be coming correct if it's not too much trouble as I want to be conscientious of the higher value of your time.

Thanks again! Really really helpful. WSO is clearly proving itself to be an invaluable resource to me in this regard.

  • Manager in Risk Mnmgt
Jan 31, 2022 - 1:48pm

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