Math on the Trading Floor

What kind of math is on the trading floor? I would love to hear. I am an Econ/Finance major with a math minor. What math courses do you advise I take? I have heard that for vanilla products, it is mostly probability/statistics and mental math, but for more exotic products, traders need to know PDE/Stochastic calculus. I knew this was true for quants, but I didn't think traders also had to know this. Any answers are appreciated for clarification.

Comments (12)

Aug 3, 2019

I am currently an S&T intern at a BB.

From what I have seen, mental math is the most valued for actual job duties.
Other than that, having knowledge of statistical tools like regressions, p-value and knowing how to work with data to find patterns would be useful for coming up with trading strategies based on a macro theme (or theme in whatever market you are in).

At the end of the day, the goal is to make money, rather than to be deep into the math behind the products.

Aug 3, 2019

Thanks appreciate it. So, even in 2019, are Econ and Finance majors still valuable on the trading floor? I was considering Econ and Math as a major, but figured that a math minor would suffice.

Aug 7, 2019

Do you mean sell-side or buy-side?

From what I have seen, the desk quants do any of the coding or model creation necessary. It will be more helpful to design strategies, learn about hedging/risk management, and developing your approach for sell-side trading. tbh you will be mainly quoting bid/ask. Anyone with any major can do that.

The systematic trading people are the one's building algo trading models.

Any analytics you want to do, for the most part can be done in excel or by learning some basic python for data analysis.

Ppl exagerrate things on this forum. Ask yourself does the best coding skills lead you to making money trading? will it get you to quote the best bid/ask in the market? :)

Aug 7, 2019

I want to start on the sell side and eventually move to the buy side at a hedge fund. The math courses i am going to take with the minor are multivariable calc, linear algebra/diff equations, probability/statistics, discrete math, and real analysis. The only courses I would be missing out on for the math major is 2 physics classes, differential geometry, abstract algebra, and complex analysis. None of those subjects can even be applied to the financial industry so I see the major as useless, compared to the minor. Also, I have programming skills in python, java, and c++.

Aug 7, 2019

Isnt model creation on the sell side just pricing models? What hedging strategies do they that the traders cant come up with?

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Aug 7, 2019

From my understanding, I believe he's talking about structuring quants, who structure and price derivatives to help clients hedge risk. Sell-side traders have to hedge the risk of their own books. So a good way to think about it is quants come up with ways for clients to hedge risk, while the trader's sole job is to make a profit for his own book, while hedging risk exposure while making markets for clients.

Aug 7, 2019

Yeh. Those are good skillsets and will help broaden your understanding of the different products and concepts especially in derivatives and fixed income.

Goodluck man!

Aug 7, 2019

Thanks man. good luck to you too in your future endeavors.

Aug 8, 2019

Yep indeed it mostly depends on the products you are trading.
Generally speaking, as said, mental math is your best friend

I am on exotics side, thus other than programming skills, you need to be proficient at least in linear interpolations, PDE, stochastic calculus, gradients and of course various Levy/Ito's lemma.
You have to be fast in knowing how greeks react, eg how fast gamma is moving or how delta hedge a position

Aug 9, 2019

Do you see a lot of finance majors on the floor anymore, or is it more math majors now. I find that most finance majors get stuck in liquid vanilla products or in sales. Is this true, or do you also find them in illiquid products too.

Aug 10, 2019