What does a Quantitative Trader do?
A holistic overview of the role and responsibilities of quantitative trader.
The Quantitative Trader Job
With the growth of computational power and the prominence of machine learning/data science, quantitative finance has increased in popularity over the past few years. As a result, quantitative trading has also witnessed an uptick, with quantitative trader jobs becoming more in demand. But what exactly does a quantitative trader do? To answer that question, we must first examine what a trader does.
Traders are individuals who buy and sell financial assets in a market. Discretionary and fundamental traders typically rely on trading strategies that involve intuition, technical analysis, or a set of specific rules. Traders, unlike investors, typically execute trades on a short time horizon and try to maximize immediate profits from themselves or their firm.
Quantitative traders share many of the same responsibilities as the aforementioned traders. The major difference is that quants execute trades based on the quantitative analysis they conduct on the market. This quantitative analysis is often in the form of mathematical and statistical research, and the trading strategies that they leverage are largely implemented in the form of computer algorithms.
|Type of Trader
|Trades are Executed by
|Intuition, Technical Analysis
|Math, Statistics, Machine Learning
While it is predominatly algorithms that execute the trades, quantitative traders must monitor, backtest, and continuously evaluate the risk associated with these algorithms and adjust their weights as needed. Quantitative traders understand that statistical models follow certain probability distributions and are subject to producing unforseen results in outlier events.
While strong skills in mathematics, financial derivatives, and statistics are requisite to become a great quantitative trader, one of the traits that is often overlooked is "good judgment". Quantitative traders must have good judgment in understanding when to reduce their leverage and optimize their portfolio to ensure the profitability of their trades. Furthermore, they must have good judgment in deriving new hypotheses that could form the foundation of new quantitative strategies and research.
The Types of Quantitative Traders
The role of a Quantitative trader can vary depending on the firm or company. Oftentimes these differences arise in the exchanges or financial products that a quant trader will work with.
Market Maker vs. High-Frequency Trading
Market-making refers to the process of matching buyers and sellers on an exchange. Market makers make money on the difference between a buy and sell offer, often referred to as the spread. Quantitative traders at a market-maker, leverage quantitative models to:
- Derive price valuations for financial assets on an exchange.
- Manage positional risk in terms of what assets are being held.
- Execute instant trades and manage orders based on market events.
High-Frequency Trading, on the other hand, is focused on the speed of execution of trades for under-priced assets. In essence, Quantitative traders at an HFT firm use quantitative models in order to:
- Finding statistical arbitrage opportunities in the market.
- Execute lightning-fast algorithmic trades.
Quantitative Traders by Financial Product
Depending on the firm and team one is placed on, quantitative traders may work with varying financial products and exchanges.
- Commodities - raw inputs that are used in the production of other goods. Some common examples include grains, beef, and oil.
- Securities - refers to a financial instrument used to finance another company directly. Some common examples include stocks and bonds.
- Derivatives - refers to a security whose values are derived from another security/securities. Some common examples include forwards, futures, and options.
- Currencies - refers to a system of money that can be transferred. Some common examples include U.S dollar and Bitcoin.
Finding Quantitative Trader Jobs
The number of quantitative trader jobs have been steadily growing over the past few years. However, the vacant positions have also gotten increasingly more commpetitive. That's why we've put together a comprehensive collection of quantitative trader jobs that you can find here on OpenQuant: https://openquant.co/quant-trader-jobs
Overall, quantitative traders are responsible for leveraging quantitative models to generate profits for the firm. While the exact types of products or strategies that a quant trader works with can vary, the general focus on statistics/mathematics is one important commonality.
Thanks for reading this article! You can check out our blog for more articles on quantitative finance topics. Also, if you're currently looking for jobs in quantitative finance make sure to check out OpenQuant.