Getting Ready for Exciting Careers in Financial Markets
Financial markets are fascinating. Markets are constantly changing.
Students of financial markets need to update themselves frequently. It is a life-long study and observation of market behaviors of people involved in the markets. Finance and markets is not an isolated subject of study. It subsumes Psychology, Economics, Statistics, Sociology, Marketing, Business Strategy. Students can aspire for careers in Securities Research, Trading, Risk Management, Dealing, Back-Office Operations, Investment Banking, Private Equity, Hedge Funds, Merchant Banking, Treasury & Forex, KPOs, Fund Management, Financial Journalism, Investment Advisory, Entrepreneurship, M & A Advisory, Consulting, domain experts in software industry, pre-sales consultants in BFSI companies, Business Analysts, etc. This article discusses skills required in financial markets and various niche areas in the field of finance.
Financial Market Awareness
Financial market awareness is one's sense of the current market environment. Students of finance should ask themselves some questions that can help assess market awareness like.
1- How well do I understand current market terms and jargon?
2- Am I following business newspapers (ET, BS, BL) & Media (CNBC, NDTV Profit), Web (Bloomberg, Moneycontrol, Reuters)?
3- What are the key factors at work in the financial markets?
4- Am I keeping track of key statistics (GDP, Inflation, RBI Interest Rates, Stock Indexes)?
Good spreadsheet skills (MS-Excel) are a starting point for any analyst position. Fluency with calculations is a pre-requisite. Some jobs require strong mathematical ability. Option pricing, bond valuation will suit students with advanced degree in Maths. The ability to analyse accounting numbers is also critically important in most analyst positions. The securities analyst should be able to tear down profit & loss account, balance sheet of a company to understand its finer points.
Trading is one of the most exciting jobs. There is no lack of action. Every day brings new surprises, new information. A good understanding of the market, quick reactions, analytical skills and the ability to withstand pressure helps.
Non-linear thinking (therefore, multi-dimensional) and being aware of difference between correlation and causation makes a good trader. My favorites for role models in trading are George Soras, Victor Niederhoffer, Nassim Nicholas Taleb. Their books also are must-read for aspiring traders. "Alchemy of Finance" by Soros, "Education of a Speculator" by Victor Niederhoffer, "Fooled by Randomness" by Taleb are all-time classics to be read and re-read by financial market students.
Proprietary Trading is a term used in investment banking to describe when the firm's traders actively trade Stocks, Options, Futures, Bonds, Commodities, Currencies with its own money as opposed to customers money, so as to make a profit for itself. Large banks like Goldman Sachs, Lehman Brothers, Salomon Brothers, Deutsche Bank, UBS employ multiple desks of traders devoted solely to proprietary trading. There are also rogue traders like Nick Lesson who took down Barclays Bank with unauthorized proprietary trading positions.
Quantitative Finance is becoming the rage with new financial products being introduced often. In India also, new products like currency futures, volatility indexes, long-term options are announced. Derivative markets have become pivotal for economics around the world. Aaron Brown of Morgan Stanley compares poker players with major players in financial markets. The book "The Poker Face of Wall Street" by Aaron Brown is an excellent read on risk management, financial markets, and the psychology behind poker and finance.
To excel in the field of financial engineering requires quantitative ability and derivatives knowledge. This field involves understanding risks that financial instruments create, and strategies to hedge these instruments. Financial engineering encompasses the design, analysis and construction of financial contracts to meet the needs of enterprises. There is an increasing demand for professionals in this field, trained in both the underlying mathematics / computer technologies and finance.
Understanding of Psychology
Investor psychology is one of the pillars in understanding financial markets. Markets may not move according to our perfect mathematical models. Taleb always reminds us, "This is not physics." Markets react in unexpected and improbable ways. Events, which are outside three sigma, are common and cause shocks in financial markets. That is why Taleb terms these as 'BLACK SWAN' events producing large impact with low probability. Apart from financial models and theories, market students must be acutely aware of idiosyncrasies of players in the market, which is Behavioral Finance.
Focus on Reading
Charlie Munger, Warren Buffet's business partner, emphasizes the need to read, read, and read, to become a better investor. Business and finance students should read widely. Often what students read is limited to text books citing lack of time. Your reading should be diverse to be able to connect theory to practice. General business books like "The World is Flat" by Thomas Friedman, "Blink & Tipping Point" by Malcom Gladwell, "Freakonomics" will help the student grasp the big picture.
Industry recruiters of analysts (like CRISIL) advise students to focus on one sector (for example, steel sector) and try to follow that sector right through their two years of study. An ideal student should know what the global market for steel, what are the global policies for steel, what happened in the Mittal-Arcelor deal, what is the impact of the global market and global growth phenomenon (example, China), what is the impact of all this on Indian market, does the Indian market has a favorable budget for the steel sector, what are the likely issues that are going to impact the steel sector, what are the companies like Jindal and Tata Steel doing for this, what are the skill sets required to be top players in the steel market, and so on.
To apply for Research Analyst positions, it helps for the student to take up one sector and cover it from the global perspective down to the micro-level to show-case his depth of knowledge and abilities.
The attitude should be "Finance is Fun". Study of Finance helps you understand business from a critical perspective and the skills are valuable throughout the student's life. In essence, focus on wide reading, critical thinking, analytical and spread-sheet skills will help a finance student to become a fine-tuned professional, able to navigate the fascinating though turbulent financial markets.
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