So you want to be the sort of systematic trader who designs trading strategies for banks or hedge funds using algorithmic trading models? This is what you can expect to be asked at interview.
1. Explain your dissertation in laypersons terms
Quantitative trading firms are big recruiters of highly qualified academics without finance experience. The downside of this is that interviews are difficult; you can’t ask Physics doctoral students questions about bond maths.
Using this question is a good tactic: it works regardless of the interviewees background. Being able to explain complex ideas simply is vital when explaining your strategies to fellow traders, and eventually to potential clients. Also people without a proper understanding of their subject will often struggle to explain it.
2. I see that you’ve studied Brownian motion. You might not have realised, but this is used in finance to price certain assets. Why do you suppose that is?
Another good question for financial neophytes, which requires some lateral thinking to answer. Hiring from non finance backgrounds only makes sense if you can work out how to apply your skills to the gritty problems of financial markets.
3.Tell me how you’d construct a risk neutral cross country trade on the 2 year – 10 year interest rate spread in Germany and the U.S.
Another source of talent for the systematic trading business is buy side analysts, whether from equity, FX or fixed income. This type of question checks your market knowledge, and will also find out if you can think rigourously about predictability and risk.
4. How can I hedge out the correlation risk in my portfolio as cheaply as possible?
You can expect this question at a buy-side quantitative firm. Here, your role will often be to monitor risk.
5. I have a strategy that is producing a Sharpe Ratio of 2. If the distribution of returns is stable how long would it be before we can be 95% confident that the distribution has a positive Sharpe Ratio?
An intuitive understanding of statistical significance is extremely important for systematic traders. Ideally you would know how to calculate this precisely, but an educated guess is better than nothing.
6. If I gave you a million dollars right now, how would you invest it?
This is an open ended question which you can use to demonstrate knowledge of different subjects. If you’re trying to show you’re plugged into current events you could relate it to what's going on now. Alternatively you could use it to show off your understanding of portfolio theory by talking about a diversified set of investments.
7. How profitable is your trading strategy?
Some firms look to hire experienced traders who will bring in their own strategy. As a screening question this will filter out less interesting strategies or fantasists with unrealistically high returns. In a later interview it’s an opportunity to show that you understand how different risk and return metrics work, and the importance of benchmarking.
8. How does your trading strategy work?
Be careful with this question: it could be sensible due diligence, or a check to see if you can explain complex ideas. But it could be a trap: less ethical firms will interview traders without any intention of hiring to gather ideas. Keep your answers general and stick to non disclosure agreements.
9. I’m concerned about the effect of a future event our portfolio. What should I do?
Systematic traders usually have to hold back their natural instincts and let their trading systems run. This question tests whether you can think sensibly about the balance between prudent risk management and unnecessary interference.
10. Write a python program to calculate X! recursively. What will happen if X=2000? How would you solve this problem?
Coding is a big part of trading systematically, but the amount of coding experience you’d be expected to have will vary. Some firms will be looking to hire hotshot programmers who can write production ready code. At others the real programming is done by professional developers, but you’d still be expected to analyse data and build prototype strategies.
Robert Carver is a former head of fixed income at quantitative hedge fund AHL, where he recruited at all levels from undergraduate interns up to experienced hires. Robert is the author of “Systematic Trading” and “Smart Portfolios”.
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