How to Become a Quantitative Financial Analyst

A quantitative financial analyst is a professional who utilizes quantitative models, both statistical and mathematical, to assess the financial risks and help organizations work effectively on the same. Based on the assessment, the organizations make wise business and financial decisions.

When the businesses are aware of the risks involved, the management can take necessary steps to avoid those risks or create a strong backup to deal with them. This is where the role of a quantitative financial analyst becomes significant. They let the management know of the issues and suggest relevant ways to take care of them.

A quantitative financial analyst is required in any organization where. It is one of the most sought-after professions in the present scenario, as only high-caliber professionals can scratch the surface.

The analysts are not expected to know everything but be open to learning and gaining as much knowledge as possible with every instance they come across. Thus, this is the most suitable role for those who think logically and analyze a scenario in-depth before coming to a conclusion.

In the quantitative financial analyst job, one must see through the vast databases and discover patterns to reduce risk and increase profits. At a basic level, to be able to thrive in this career, one needs to be amazing at four specific subjects – mathematics, data science or software, finance, and application development.

Before choosing this career, one must check if the career suits them. There is an educational requirements, recommended certifications, a few skill sets, compensation structure, and responsibilities that a quantitative financial analyst must be aware of before becoming one. If all seems satisfactory, one can easily choose a career.

To become a quantitative financial analyst, a person must possess the ability to think logically. However, besides this, they also require having relevant knowledge on a few subjects that can help them collect relevant data, interpret it, analyze it, and reach valid conclusions.

A list of subjects one should know to be able to perform the duties of a quantitative financial analyst –

• Statistics
• Linear Algebra
• Accounting
• Financial Reporting
• Calculus
• Economics
• Computer Programming
• Financial Markets
• Financial Modeling
• Investments
• Financial Analysis

There’re many more to add. But these are the main subjects you need to get a good grip on.

As already mentioned before, one needs to analyze and look through vast data to understand patterns.

source: bankofamerica.com

So, the right education would give you the tools to perform those tasks. Here’s what you should aim for –

• Bachelor’s degree in finance or math/science is a must.
• Masters Degree - If you want to become a quantitative financial analyst, it’s hard to get a job just by doing graduation. It would be best if you did a master's as well. For masters, you can do specializations in multiple fields. For example, you can get a master’s degree in quantitative finance, or you can go for financial engineering. If you can’t avail of these specializations, you can go for a related field to quants, i.e., a master’s degree in physics/statistics/math.
• Dual Programs - Your aim should be to find a dual program that offers quantitative finance and applied mathematics. You can take a major and a minor. If you don’t get these two in the same program, you can go for a major in quantitative finance and a minor in economics. Even that will do.
• Computer Programming - Another option is to go for computer programming and do a course in investments. Many students who aim to become quantitative financial analysts do that.
• Ph.D. - You shouldn’t stop yourself just at the master’s degree. Many employers hire only those applicants who have a relevant doctoral degree. So consider doing a Ph.D. while you work.
• Multiple Internships - There’s another option. You can take up multiple internships to learn the basics of all the subjects at a practical level and pursue your study along. So that when you complete your study, you will have some practical experience to show to reputed employers. Studying all these subjects would take some time.

There are only two certifications that will help you thrive in this career. And that is CFA from CFA Institute, USA, and Certificate in Quantitative Finance (CQF).

source: monster.com

CFA

• This profession combines multiple skills, and investment is one of the most important. No certification can offer you so much knowledge and expertise as these CFA examinations.
• CFA provides you with overall knowledge of Corporate Finance, Accounting, Financial Analysis, Fixed Income, Derivatives, Alternatives Investments, Investment Management, Portfolio Analysis, and more.
• CFA certification is considered to be Gold Standard within the Finance Industry.

CQF

• CQF is a part-time Financial Engineering program that can be completed as a single six-month program or split into 2-3 month levels.
• It provides in-depth training in derivatives, IT, Quantitative Trading, Modeling validation of Risk Management, Insurance, and more.
• CQF will give you an edge over others because it will help you learn trade secrets and experience how quantitative finance analysts need to work in a real-world environment.

Thus, if you want to do well, along with all the educational degrees, consider doing both of these certifications as early as possible in your career.

Job responsibilities may differ as per the employer and the policies of the company. But certain things wouldn't change much. So here’s the list of job responsibilities that a quantitative financial analyst has to perform –

• Making modeling decisions: As a quantitative financial analyst, you must make modeling decisions. To do that, you need to research, analyze market trends, see statistics, and finally make an informed decision.
• Develop quantitative models: Your job would be to develop and implement complex quantitative models, for example, models for trading equities. You also need to be able to develop analytical tools and software.
• Perform statistical analyses: Your job as a quantitative analyst is to perform daily/regular statistical analyses like risk analytics, loan pricing, default risk modeling, etc.
• Do coding: You need to do coding also. That means you need to have sound knowledge of computer programming. For example, you need to do pattern recognition or machine learning coding tasks.
• Model specifications: You also need to take care of model specifications and apply several methods for data collection.
• Testing: Your job would also be to test new models, products, and analytics programs.
• Collaborate: You must collaborate with mathematicians, computer engineers, and physicists to create optimal strategies. Collaboration is the heart of this job. You can’t do it independently.
• Consult: You also need to consult with people in hardcore finance so that you can discuss trading strategies, market dynamics, and trading system performance.
• Present & interpret: Your job is also to present and interpret data results to clients and senior management so that they can be helped in strategizing further.

These are the main job responsibilities of a quantitative finance analyst. So you can understand how complex things are and perform these job responsibilities well, you need to know almost all the subjects mentioned above.

Of course, it’s a tough job. But if you have the following skills, you would be able to handle all the job responsibilities with ease. Let's look at the skill sets required for the quantitative analyst.

#1 - Art of applying scientific methods to finance

This is not as similar to the finance domain. This is tough. Because you need to figure out a way to apply scientific methods and software programs to hardcore finance, you would be able to do that if you have vast knowledge in advanced mathematics, physics & quants, and you also have experience in applying these methods in vast data. Your job is to find and analyze the pattern using these scientific methods. With practice and knowledge, you would be able to perform well.

Financial Skills

• Financial Modeling
• Portfolio Theory
• Accounting
• Financial Analysis

#2 - Alpha generation & risk management

As mentioned earlier, the main objective of this position is to ensure that the risk to the clients has been reduced and the generation of profits has been increased. So how would one do that? By understanding the investment market better. That’s the reason it's good if you have a CFA certification. If you have a CFA, understanding investment would be easier for you, and you can perform alpha generation and risk management effectively.

Risk Management Skills

• Knowledge of credit risk-products
• Equity & Interest rate derivatives
• Fixed Income
• Monte Carlo Techniques

#3 - Technical skills (Computer Programming)

Many quantitative financial analysts have a depth of technical skills/ computer programming knowledge. Most specifically, they know Python and C++. By understanding and applying their technical skills, they’re able to implement algorithmic trading strategies. Even they use these skills in complex funds like hedge funds. So it’s mandatory to acquire computer programming skills to thrive as a quantitative finance analyst.

Technical Skills

• C++ (it’s utilized for high-frequency trading applications)
• Python
• Data Mining
• Java, .NET
• VBA Macros
• Excel
• MatLab, SAS
• Object-oriented programming
• Big data modeling

#4 - Effective communication skills

It would be best if you had effective communication (mostly verbal) to deal with the team and many team members who are from different domains and help you achieve the goal of the firm – client satisfaction. To communicate well, you need to know how to listen to people who are hardcore in their domain and can help you in your work to understand the pattern of a vast algorithm.

Soft Skills

• Independent research skill
• Problem-solving skill
• Ability to work under pressure
• Cohesiveness

#5 - Mathematical and research skill

This is of utmost importance, even more than knowledge of anything else. Many firms that need a quantitative finance analyst prefer to hire a research scientist than a finance guy because a research scientist has more knowledge and depth of research and can create, change and shift the algorithm as and when required. So concentrate on developing the skill of research in scientific studies to be considered for this profile.

Mathematical Skills

• Linear algebra and differential equations
• Numerical linear algebra (NLA)
• Game Theory
• Calculus (differential, integral & stochastic)
• Probability & Statistics

There are many opportunities for quantitative financial analysts. But, if you're QFA, you will be hired by hedge funds and investment banks. In some cases, you would also be able to find opportunities in securities, commodity trading, accounting companies, brokerage firms, commercial banks, and financial consulting firms.

But the big question is what the range of compensation is? Here’s the deal. According to PayScale, the median pay of New York Quantitative Financial Analysts was US $101,947 per annum.

source: payscale.com

In India, the amount is much less. It’s around the US $10,000 to $25,000 per annum for freshers.

According to Glassdoor, the median salary of a Quantitative Financial Analyst was US $106,575 per annum. The minimum was US $63,000 per annum, and the maximum was US $155,000 per annum.

You would be surprised to know that schooling is not the first thing you should do to be able to become a good quantitative financial analyst.

The first step is to learn to think for yourself. Yes, there will be people on whom you need to depend on getting the work done, but if you think that you don't agree with groupthink, you need to go beyond the convention and break away. In this field, individual thinking is of utmost importance. Now, why do you believe it? Because it’s said by one of the top quantitative financial analysts in the world, Mr. Micah Spruill, Co-Founder of Aurora Investment Advisors.

The second most important thing to consider, according to Mr. Spruill, is to take a scientific approach in any problem-solving you’re involved with. Without a scientific approach, you won’t be able to view problems with fresh perspectives, and thus, the solution you would give won’t stand out.

Once you are confident about the above two, Mr. Spruill suggests you need to have a little bit of eustress (healthy stress) to keep you going; otherwise, you may become an overconfident snob.

So take these things into account and go for great education and certification. The future of quantitative financial analysis has no bounds.

This article has been a guide to what is Quantitative Financial Analyst. We explain its job responsibility, salary, skills, educational requirements & other details. You may also have a look at the following related topics:

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• What is Quantitative Research?
• Quantitative Analyst Careers
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• What is Financial Analyst Job Description
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• Equity Strategies