Becoming a "capital quant"

[jimmy_b]

I am a BElec Eng/Bsc Physics graduate who is looking to do postgraduate studies to be a capital quant as Mark Joshi puts it. Ideally I'd like to work on the portfolio or risk side of a large bank.

However, I am a little confused as to what path I should take? MSc Quant Finance? Msc Financial Maths? Finance phd? Or even Elec Eng phd?

 

[GoIllini]

So, a lot of the folks on the portfolio side have more of a stats or applied stats background. You see a lot of Econ and Finance PhDs, a lot of regressions, monte carlos, portfolio optimizations, etc. You tend to see less stochastic calculus in these roles and a lot more demand for communication skill and the ability to work as part of a team.

My suggestion, first and foremost, is that you work for a couple years after you get a bachelor's degree. A job in a "Strats" role at a Goldman or Morgan Stanley, or an "Analytics" role at Deutsche would be ideal, but any front office technology role that involves market analytics would be really valuable experience. The right kind of job at a prop shop would also be helpful.

Stay there for a couple years. Save up some money. Get some experience. Learn the language of finance; learn how to explain complicated problems in simple terms to an MBA with a sociology undergrad.

 

[jimmy_b]

I already have 6 years experience as a prop trader at a prop firm. No finance exp otherwise. I do a combination of discretionary and algorithmic trading (no modelling just if then else) in C# with the Trading Technologies XTAPI.

 

[GoIllini]

I already have 6 years experience as a prop trader at a prop firm. No finance exp otherwise. I do a combination of discretionary and algorithmic trading (no modelling just if then else) in C# with the Trading Technologies XTAPI.

Got it. Next time let us know if you're a few years out of school- that's a really important detail.

What did you trade? How siloed is your firm? Is there a team dynamic or do traders have their own books to worry about?

Tell me about your firm's culture (EG is it more like a GETCO or is it a bunch of football players).

Finally, tell me about what you remember from undergrad stats, and whether you get to use any of that as part of your job.

You may already have the background for a portfolio quant role without an MFE. I would just caution you that portfolio strategy is a very different culture than sellside institutional brokerage and perhaps prop trading. The technical competencies are just as important, but there are also a lot of differences. People communicate much differently, expectations are different, and it's more about ideas and working as part of a team than strict execution.

 

[jimmy_b]

thanks for the advice Gollini. Yes I want to move away from front line trading and find a middle office analyst role.

It was a pure prop firm so everybody ran their own book.

My stats knowledge is virtually non-existent. My biggest strength is being "expert" level (ie not advanced enough to be a developer) at C++, C# and C. As I've mentioned I have found, coded and traded my own profitable algorithms.

My 6+ years since graduation and lack of finance maths knowledge is why I'm exploring postgrad studies. Right now I'm leaning towards a MSc in Quant Finance so I can learn all that's necessary for credit and derivatives. However, I am still exploring avenues to achieving my goal before committing to one thing.

 

[GoIllini]

thanks for the advice Gollini. Yes I want to move away from front line trading and find a middle office analyst role.

I think most portfolio strategy quants would claim that this is a front office role too. In fact they'd argue it requires more client interaction than prop trading. If you're in Chicago right now but wind up at an NYC firm, this may be one of the first of many cultural differences that annoys you.

My stats knowledge is virtually non-existent. My biggest strength is being "expert" level (ie not advanced enough to be a developer) at C++, C# and C. As I've mentioned I have found, coded and traded my own profitable algorithms.

My 6+ years since graduation and lack of finance maths knowledge is why I'm exploring postgrad studies. Right now I'm leaning towards a MSc in Quant Finance so I can learn all that's necessary for credit and derivatives. However, I am still exploring avenues to achieving my goal before committing to one thing.

Ok. So an MFE would probably help here. Two years in academia would also help prepare you for the culture found in these portfolio strategy type roles.

Given your background you'd likely be a strong candidate at CMU and Columbia, perhaps Princeton if it's a well-known shop or it hires Princeton graduates. MIT tends to aim a bit younger. UChicago does not have a great program for Financial Mathematics (though they have excellent PhD and MBA programs). You should also consider Stanford and UC Berkeley for MFEs, although I see less of them on the east coast.

In the meantime, you need to be deferring your earnings into a pre-tax 401k as much as you can. You can withdraw from a 401k penalty-free to pay for tuition. Furthermore, you can take a tax deduction on it if it does not qualify you for a new industry, (See IRS Publication 970). So it makes a lot of sense to be shifting income from a year where you are working into a year where you won't be working.

 

[Kirill Al]

@GoIllini
You can take an unlimited amount, penalty free, from a pre-tax IRA--but not a 401(k)--to pay for college or graduate school tuition, books and fees for yourself, a child or even a grandchild.

 

[GoIllini]

that's an important point. You do need to convert to a rollover IRA to get it out. But most people can't make pretax contributions to an IRA if they earn over a certain threshold. So let's get the money into a 401k and worry about the rollover later.

 

[CN Chen]

@GoIllini
I agree with your advice generally, but the bit about IRA is not entirely true. You're right about the income threshold for Roth IRA, but Traditional IRA contribution is still possible up to $5,500 p.a. and this avoids the headache involved in a 401k rollover (i.e. a fair amount of delay, paperwork, but biggest drawback is it requires you to leave the company).

 

[GoIllini]

@GoIllini
I agree with your advice generally, but the bit about IRA is not entirely true. You're right about the income threshold for Roth IRA, but Traditional IRA contribution is still possible up to $5,500 p.a. and this avoids the headache involved in a 401k rollover (i.e. a fair amount of delay, paperwork, but biggest drawback is it requires you to leave the company).

Anyone can make a traditional IRA contribution, but your income must be less than $60,000 to take a full deduction:

http://www.irs.gov/Retirement-Plans...-You-ARE-Covered-by-a-Retirement-Plan-at-Work

This excludes the vast majority of traders with strong programming backgrounds, and it's a bad deal if you can't take a deduction. If OP goes full-time, he'll be leaving the company anyways and will be able to convert to a rollover IRA the day he leaves.

 

[CN Chen]

@GoIllini
Sorry, I was wrong. There are no income limits on Traditional IRA contributions, but there is an income limit on the ability to take a tax deductions from a contribution. Having read many of your posts on WSO, I should have known better than to question your personal finance wisdom

Haha you beat me to it.