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Trading vs. Quant Research

Zeuge

Zeuge

Joined
8/26/11
Messages
175
Points
28
It seems like a lot of MFE/potential MFE students here prefer trading positions over quant research roles, and they are using their degree/future quant work as a springboard for a career in trading. Besides the obvious differences in compensation, what are the major drawbacks and the benefits of the two different career paths? Is quant research more "rewarding" for a quantitatively-minded person or it is most often a "glorified IT position"?
 
I was thinking that trading is more hands-on and sometimes doesn't require so much quant stuff. Like for example the algorithms are already all there, you just have to be the human watching over them and making hundreds of little (non-quant) decisions a day.

Perks: money. And lots of it.
Cons: Traders get fired. Societe Generale in France got rid of the vast majority of them, and UBS firings have been just out of the ballpark. Also, if you haven't used your quant education in everyday life for years now, you've probably forgotten a lot of it: the models, the calibration methods, stochastic calculus and PDE's. It's a shame because not a lot of people are good at those things, and you used to be.

Another way to think about it: A quant with years upon years of experience can always get into trading. That door is always open. But an experienced trader can rarely pass the technical exam to get into quant research.
 
Zeuge said:
It seems like a lot of MFE/potential MFE students here prefer trading positions over quant research roles, and they are using their degree/future quant work as a springboard for a career in trading. Besides the obvious differences in compensation, what are the major drawbacks and the benefits of the two different career paths? Is quant research more "rewarding" for a quantitatively-minded person or it is most often a "glorified IT position"?
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most students here prefer trading over quant research roles because they don't understand themselves, the way the world works, finance in general, and their employability. they think it's glamorous and pays big money, and that's why you see that bias.

not really sure if you can quantify the compensation differences, as one is quite steady while the other is volatile.

it depends what kind of research you're doing, but if you like working with datasets and coming up with ideas and implementing them (i.e. a slower pace than trading, at least at a bb), you might want to consider it. it really depends on what you're interested in and what you might find more intellectually rewarding.
 
I think that trading has lot to do with your psychology as well? How these MFE programs prepare you to be trader? I still haven't had any idea abut this.
 
MFE programs don't prepare you to be a trader any more than doing pushups prepares you to be a professional athlete. Most traders aren't quants. The quant piece is one aspect of a particular set of trading strategies. The notion that you can simply babysit algorithms and watch the money pile up is simply absurd.

The desire to trade is not a good reason to get a quant degree. You'd be better off putting up some cash at a bucket shop to try your luck/skill. It would be much cheaper (right, Amanda?). Get a quant degree because you want to be a quant
 
From personal experience, trading sounds sexy, but rarely is. Especially quant trading. Most of quant trading is making sure the data crunching process does what it's supposed to, then writing a bunch of code just to run a backtest, having that backtest fail 19/20 times, and even after a successful backtest, trying to replicate that in reality when your backtests are by their very mechanics of you not actually being in the market, going to assume that you got good fills, and so forth.

Then there's all of the research scripts and all of the other stuff you have to do to support the algos, which is what I'm doing for my internship.

Believe me, it's not as sexy as it sounds.
 
Thank you IIyaKEightSix!!!! So, you don't deal with money at all. Is it like glorified IT ?
 
Sorry for my naive question: if quant models/strats work (ie: it can predict market direction or it can make money), why would we need traders?
 
kamikade said:
Sorry for my naive question: if quant models/strats work (ie: it can predict market direction or it can make money), why would we need traders?
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If you only run models on the public market, then no, you don't really need traders if you can predict the market.

Most traders, however, make money on the sell-side executing large orders and customizing financial products on the OTC market. It means there's a lot of human interaction involved and "trading" becomes more of a client-relation business than a pure trading competition. Yes, I can rip my clients a new one by giving them a horrible quote for one trade, but then they will NEVER TRADE WITH ME AGAIN. The trading circle is also surprisingly small, so if you did something unethical or stupid at one shop, chances are EVERYONE will know you soon and you won't get a job anywhere else.

Quant models definitely made traders a lot more efficient, but it just means that traders now spend more time talking to clients and explaining the products than personally implementing dynamic hedging by hands. When client flow dies, there's no need for traders anymore to explain things. But quants can be more easily repositioned to other roles thanks to their math/coding skills. Both quants and traders are crucial for the success of a trading desk. Really just depends what kinda lifestyle you want.
 
Jayanthan said:
Thank you IIyaKEightSix!!!! So, you don't deal with money at all. Is it like glorified IT ?
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Don't deal with money at all? The people I worked with did deal with money. But at the end of the day, what the heck is money in a backtest? It's one line of code. You wanna start with a million bucks?

initialAllocation=1000000

Ten thousand bucks?

initialAllocation=10000

If everything goes absolutely spectacular in the setting up/backtesting phase, then and only then do you start off in small-sized lots, and watch those positions like a hawk to make sure it's doing what it needs to be doing. On top of that, the trading software you use matters a heck of a ton, which I'm by no means an expert on, but the man I worked with once upon a time right now is in the middle of changing platforms, so it's no negligible detail.

Yeah, from the 10,000 foot view, you have perfectly cleaned data that reflects the market you're going to trade in, and you can just read some white paper, implement a backtest, and suddenly you're going to be rich.

As they say, the devil is in the details, and the details take hours upon hours of work to get right, to the tune of thousands of lines of code, and having to hire an intern if not a full-time analyst just to mind that stuff.

So yeah...quant trading isn't so much trading (the machines do the trading, you do everything else), as making sure the machines can do the trading while you watch to make sure the algos do what you expect them to, while at the same time groping around in the dark for new ideas, and also writing a bunch of scripts to do other research work for you.

So the question is, do you like to work on writing code all day, chasing around bugs, creating iteration after iteration of the same basic code to do that one thing perfectly so that your new strategy can make a few hundred dollars a day in the beginning if all goes well?
 
If you want to do quant trading because it "sounds sexy", it's my belief that you are woefully misguided.

As far as the necessity of traders... I agree with Ken here and also... see "Sussman attains enlightenment": http://catb.org/jargon/html/koans.html

Quant trading is a specific subset of trading, and probably a small one in the grand scheme of things. It relies on fairly liquid markets and plentiful data. Try writing an automated quant strategy to trade anything OTC...
 
IlyaKEightSix: Huh that's really eye-opening. I was always interested in quant trading but I didn't really have good programming skills, now I see what it's all about.
 
IlyaKEightSix said:
So the question is, do you like to work on writing code all day, chasing around bugs, creating iteration after iteration of the same basic code to do that one thing perfectly so that your new strategy can make a few hundred dollars a day in the beginning if all goes well?
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It's also well-know that the opportunity window for money-making strategy is short-lived (few days, if not hours) and then time to rinse and repeat again.
 
IlyaKEightSix: Well, I was on the ball for that for a while. I read a 1300 page textbook on C++, and really understood it. It wasn't a course, I just did it independently. I also did about a third of the exercises in that book. I know how it all works: loops, pointers, structures, classes, polymorphism, recursion, stacks, queues, binary search trees, etc and can program those. I can understand other people's code (what it does, how it works) when I read it. But I just feel like my biggest challenge is that no one ever takes me seriously because I haven't ever used C++ in a work environment. When they ask me this and I admit that none of my previous jobs used C++, they become skeptical. That kind of kills my buzz.
 
robopool said:
IlyaKEightSix: Well, I was on the ball for that for a while. I read a 1300 page textbook on C++, and really understood it. It wasn't a course, I just did it independently. I also did about a third of the exercises in that book. I know how it all works: loops, pointers, structures, classes, polymorphism, recursion, stacks, queues, binary search trees, etc and can program those. I can understand other people's code (what it does, how it works) when I read it. But I just feel like my biggest challenge is that no one ever takes me seriously because I haven't ever used C++ in a work environment. When they ask me this and I admit that none of my previous jobs used C++, they become skeptical. That kind of kills my buzz.
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I guess, if you are confident enough, why don't you say that you did something? ;) you may get an opportunity to do real stuff
 
robopool
So basically, you got frustrated and gave up.

Many MFE grads never worked in finance before their first internships. How did they convince recruiters that they are worth 100k after graduation then? There are many ways to show proficiency. If you've never worked with it, write up an app and show them. Or run a strategy using C++ based platform. I know two platforms (tradelink and openquant) that use C#. There's a bunch with Java. Or write an app on iOS (objective-C) or Android (java). If no one shows faith in you, at least have faith in yourself and push yourself through the boredom and self doubt.

Knowing what you want is hard. Actually learning the materials is harder. But people will only pay if you Are able to apply what you read in hands-on situations. So don't give up.
 
Jayanthan and bullion: You two are totally right, I am definitely going to start coding some things up to show them. So far I've only done the exercises, those are kind of non-finance (like writing a checkout program for searching and keeping inventory of books in a bookstore), so I'm going to start writing actual finance-related codes. I will try to run actual trading strategies. That was a good idea. Do you know any platforms that use C++?
 
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