How to Make a Successful Career in the Derivatives Market | Fmi Online (2024)

How to Make a Successful Career in the Derivatives Market

The derivatives market is a huge industry within the financial sector. A large portion of the workforce involved in the financial markets is directly or indirectly associated with derivatives markets.

Derivatives refer to any financial instrument whose value is linked to an underlying asset. In simple terms, the performance of the underlying asset dictates the performance of the derivative. For example, an equity futures contract of Apple Inc. would rise in price if the market participants are optimistic about the future performance of Apple – the underlying asset. There are multiple reasons for buying a derivative rather than the asset itself, speculation being the predominant one. Today, there exist various kinds of derivative instruments such as options, futures, swaps, and forex.

In this article, we will discuss some of the career paths in the derivatives industry, and how you can prepare for them. Before we delve into these career paths, it is important to note that working with derivatives does not eliminate the need for financial analysis as one must evaluate the underlying asset to reap benefits from derivatives.

Job Profile in Derivatives:

There are three broad job roles in the derivative markets:

1. Derivatives Trader
2. Derivative Operations Analyst
3. Derivatives Risk Analyst

Derivative Trader

A derivatives trader conducts research and creates strategies to trade derivatives across fixed income, commodities, and equities with an aim to make a profit with price fluctuations. These include financial instruments such as interest rate swaps, total return swaps, fixed income and commodity futures, equity index options, and other credit derivatives.

Moreover, a derivative trader evaluates trading strategies, improves trading practices, conducts portfolio analysis, creates performance reports, and maintains relationships with multiple brokers. This ensures efficient and timely execution of trading positions, and trade settlements, and improves accuracy in the cash flow of trades.

Qualifications required:

In general, the following qualifications are required to become a derivatives trader, however, it varies with different financial institutions and the nature of work.

1. A bachelor’s degree in finance, economics, computers or mathematics.
2. Sound knowledge of corporate finance, fixed income, equities, and commodities.
3. Understanding of financial markets and their working, including technical knowledge relevant to derivative trading, such as programming in VBA, R, SQL, Bloomberg, MS Office, etc.
4. Other certifications, which improve your credibility, including CFA, CPA, and FRM.

Derivative Operations Analyst

Derivative operations analysts collect, analyse, and help process derivative lifecycle dealings for different types of products in order to support the derivative hedging team in the front office. Other major responsibilities of a derivative operations analyst include managing collateral of over-the-counter products, monitoring movement in margins for futures, coordinating and performing reconciliation of derivatives position and preparing periodic reports.

Qualifications required:

A derivative operations analyst should have the following qualifications:

• A bachelor’s degree in accounting, finance, or business administration.
• Sound knowledge of derivative instruments along with an understanding of investments and financial markets.
• Strong organisational skills
• Knowledge of relevant tools such as Microsoft office, Macros, etc.

Derivatives Risk Analyst

In addition to analysing different types of fixed-income strategies and yield curve positions, derivatives risk analysts evaluate macroeconomic developments. Among their responsibilities are developing a fair understanding of trading teams’ operations and strategies, monitoring risk limit consumption with VARs, and following up on breaches with the relevant office. They also communicate with senior management on daily and monthly transactions and P&Ls.

The qualifications required to be a derivatives risk analyst are similar to that of a derivative trader, however, require more experience and knowledge of risk management tools. It is difficult for fresh graduates to start their derivatives career as a derivative risk analyst and requires a master’s degree or certification courses in risk management.

Conclusion

A career in the derivatives industry requires the capability to evaluate the underlying assets. Thus, an aspiring derivatives trader must have an understanding of corporate finance, financial analysis and working of financial markets, along with introductory or intermediate knowledge of technical analysis to understand price movements. Moreover, you need skills and qualifications that will help you navigate the dynamic and fast-paced financial markets. As a result, a job in the derivatives market can be very demanding and stressful but also offers lucrative compensation and growth opportunities.