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Physicists in trading industry | Reply
I have a friend who asked me if there is place for a physicist in the trading industry. He has in mind getting into it, but he is not sure what steps he should do. Do trading companies, like for example DRW, hire physicists as traders? Would he be required further education in trading / finance or would it be provided by the company?

I wouldn't have asked such an open question normally, but since the people of DRW are so active in this forum, I hope they will answer. You are doing a great job answering questions in this forum! Thanks!
Re: Physicists in trading industry (response to post by tywok) | Reply
Your friend may be interested in picking up a copy of My Life as a Quant.
Re: Physicists in trading industry (response to post by tywok) | Reply
One morning around the graduate college dining hall, there was an apropos gathering of physicists, finance students, and economists. The physicists are always quite amazed by those people who decide to forgo the life of the ivory tower, and choose to strike out into the real world, and so could not be kept from asking what the economists actually did. Furthermore, we could not be kept from wondering aloud what type of mathematical models they built and polished, and whether any of them had a physical interpretation.

One of the economists scratched his head, drew a sip of black coffee from his porcelain cup, and mumbled something about how a large proportion of the physics department of Harvard University was hired by a trading company, with the lure of riches beyond the pale of the meager imaginings of the physicists ("you mean I can afford a house?!").

But what did they do? Why them? What did the trading company see in them? I offered, from my experience in TopCoder, that trading companies appear to be mostly interested in hiring people who were very smart, and that maybe physicists at Harvard fit the bill.

"Uhmmm, no, not quite. I think it was something along the lines of specific expertise... something about, quantum... quantum field theory, maybe?"

I closed my eyes. Quantum field theory -- gads! They're going to use that for economics? Renormalization, Feynman diagrams, antimatter. I was aghast, economics would certainly be fun this way, but how on earth would anyone use it?

As my incredulity faded, it dawned on me. "Aha!" I exclaimed, "I think I know what they do! In Quantum Field Theory each normal mode oscillation of the field is interpreted as a particle, and all of these oscillations, coupled together, form the field. But we can just as well interpret an economic 'price function' as a field, and interpret each individual market player as a linear oscillator! The mathematics is exactly the same, so we can use all of the methods of QFT! It's brilliant!"

I asked my friend across the table: "You must tell me. Did it actually work?". He shook his head. "I don't know. All of the results would be lost to the company. Perhaps if the stock rose inordinately it might say something, but how or why it happened would always be a mystery."

Dejectedly, I pondered this. For perhaps the ex-physicists are happy, with their six-figure salaries and shiny urban lifestyles. But if I was them, well, I doubt I'd be able to handle keeping my application secret. And so I discovered yet another reason why I can't live in the real world. I'm an intellectual show-off.
Re: Physicists in trading industry (response to post by tywok) | Reply
I don't know anything about DRW, but my friend of mine recently applied to D.E. Shaw and most of his interviewers were people who did physics undergrad and/or PhD. I don't know anything about finance myself, but from what I hear a lot of the mathematical tools physicists are familiar with are very useful for finance and there end up being a good number of physicists at finance companies.
Re: Physicists in trading industry (response to post by Minilek) | Reply
I'll be starting in Renaissance Technologies this October and, oddly enough, my future boss has his Phd in high-energy physics.
Re: Physicists in trading industry (response to post by tywok) | Reply
Short answer, yes.

Now for the long answer.

Outside of the back-office finance, HR, and legal things, there are three types of jobs at a trading firm. Trader, Software Engineer, and Quantitative Researcher. These days trading firms (DRW included) are hiring more and more technical based applicants as traders (obviously those are already the top people in the SE and quant world)--regardless of their background, be it engineering, physics, pure maths, etc.

If you think about it, physics may very well be one of the most applicable skill sets to the trading world--just off the top of my head they deal with turbulent and chaotic systems, time series analysis, and well defined systems that are modified by outside factors. These are all things that are very important to trading. With the advent of trading moving to the screen (electronic vs. physical floor trading) physicists, or any type of scientist for that matter, are more capable of applying their models to the trade than they were five years ago when it was mostly floor traded. So it seems to be getting better and better for those physicists.

Ultimately the lines between programmer, researcher, and trader are blurring. The walls that were once there aren't any more, and we find that some of the most successful people are able to combine programming skill with strong mathematics and trading theory.

As an example, you can look at what DRW_Dominic and I do at DRW. We are part of the algorithmic trading group...I'm sure you can guess what that means. Dominic has a very strong background in math and trading, and I have a background focused on computation theory and programming with no formal schooling in economics or finance. We are both now working on some of the most cutting edge trades with other people that are of similar backgrounds.

As for trader training, I can't speak for other companies, but it is all taken care of at DRW. Regardless of what your position is, trader, programmer, researcher, you go through about a years worth (once a week for about 3 hours) of courses to teach you the world of trading. These classes are taught by partners or sr. level traders at our firm, so it is taken very seriously.

Let me know if you (or your friend) have any other questions.

Chris Zuehlke
DRW Trading Group
Algorithmic Trading Group
Re: Physicists in trading industry (response to post by Insight) | Reply
Maybe it's just me but physics strikes me as more real than economics.
Re: Physicists in trading industry (response to post by Insight) | Reply
I wonder how much free time do you have to write posts of such length? Find a job, huh? ;)

Edit: smile added.
Re: Physicists in trading industry (response to post by Ragnarok) | Reply
Hey, who knows that he may become a prolific writer :)