Do You Need a Degree to Be a Trader?
A degree is not always necessary to become a trader.
While some firms may require formal education for credibility and foundational knowledge, many prioritize hands-on experience and skills such as analytical thinking and synthesis of ideas.
Moreover, the accessibility of online resources and platforms allows individuals to learn and practice trading independently.
Additionally, certifications and short courses can provide focused, practical skills needed in the trading sector that you can’t get through traditional schooling.
Thus, the necessity of a degree can vary based on individual circumstances and the specific requirements of a trading firm.
Of course, if you are trading on your own, there are no strict requirements. Of course certain skills, abilities, learning, and training are necessary.
Key Takeaways – Do You Need a Degree to Be a Trader?
- Varied Paths to Trading – The necessity of a degree for trading careers depends on individual and firm-specific factors. Many successful traders prioritize practical experience, analytical thinking, and other cognitive abilities over formal education.
- Value of Alternative Learning – Access to digital technology, online resources, and certifications allows individuals to acquire practical trading skills independently, often leading to successful careers without a traditional degree.
- Benefits of Formal Education – Despite the alternatives, a degree can offer structured learning, networking opportunities, and meet certain employer requirements, which can provide a foundation and credibility.
Reasons Why You Don’t Need a Degree
Emphasis on Different Cognitive Abilities
In trading, creativity, vision, intuition, synthesis, idea generation, and decision-making skills are most important.
Those things are more difficult to teach and assess in school.
In school, a lot of the focus is on memory and processing speed (largely because they’re easier to grade and measure) as well as your ability and willingness to follow instructions.
Memory, processing speed, and following directions are generally of limited value in trading because the computer and technologies you use handle all those kinds of tasks in a way that’s much faster, more accurate, and less biased than any human could ever achieve.
The ability to become a successful trader, investment banker, etc., is not very dependent on academic qualifications.
Firms value the skills and attributes that candidates bring, which can be developed outside of formal education.
Related: David Rubinstein on the Qualities of Good Investors
Practical Experience
Learning how to navigate financial markets and understanding economic dynamics often come from practical experience rather than formal education.
This kind of expertise is more effectively acquired through hands-on experience rather than through theoretical education, which might not prepare individuals very well or give them much (or anything) in the way of practical skills.
Access to Information
Digital tech has democratized access to information, providing individuals with a variety of resources online.
These include tutorials, courses, and platforms that facilitate learning and practicing trading without the necessity of formal education.
This enables individuals to build a career in financial markets with self-guided learning.
Networking
Building a network and establishing relationships with mentors in the field can offer insights and knowledge that aren’t readily available in formal education settings (though formal education can help open these).
Networking allows individuals to learn from the experiences of seasoned professionals, which can be very useful in carving out a successful career in the financial markets.
Creative Strategies
Success in the financial markets – especially since tactical trading is a zero-sum game – often comes from new strategies and thinking outside the conventional frameworks.
What gives an edge? There’s a creativity and lateral thinking approach to it and not just blindly believing what they’ve been taught or the standard analytical approaches.
All the standard analytical approaches have been beaten to death.
Formal education settings usually focus on established theories and models, which might not encourage out-of-the-box thinking.
In contrast, experiential learning fosters innovation, enabling individuals to develop unique strategies that can lead to success.
Personal Traits
In the financial markets, personal traits such as discipline, patience, temperament, and psychological resilience often hold more weight than formal education.
These traits assist individuals in navigating the markets, helping them to achieve success through perseverance and a balanced approach to trading.
There are always setbacks in trading. Nothing ever goes in a straight line.
Learning from Mistakes
The financial markets offer a platform where individuals can learn quickly from their mistakes, a vital aspect of experiential learning.
This continuous cycle of improvement helps individuals to refine their strategies and adapt to the market conditions, fostering a career built on practical knowledge and experience.
Certifications and Short Courses
Instead of pursuing extensive formal education, individuals can opt for certifications and short courses that focus on imparting practical skills necessary in the financial markets.
These courses offer a more direct route to acquiring the knowledge and skills needed to succeed in a financial markets career, without the time and financial commitment of a full-fledged educational program.
Academic Degrees and Hiring Trends
Investment banks and trading firms often prioritize the pool of talent over specific educational content when hiring.
This means that while having an undergraduate degree or an MBA can be beneficial, it’s not the core reason these firms hire candidates.
The curriculum itself isn’t the primary concern; rather, the focus is on the qualities and potential of the individuals.
Finance Has a Weak Academic Foundation
For most fields in finance a college degree won’t provide much value in terms of actual monetizable skill acquisition.
The degree is simply a filter that suggests you might have the ability to learn how to do the job and can follow directions.
Finance has always had a weak academic foundation, similar to marketing and sales as it’s always been more commercial.
Modern quantitative finance actually found its roots in beating casino games in Nevada, not in academic theory, and started becoming mainstream in markets in the 1970s.
Trading blends elements of economics, business, mathematics, statistics, probability, programming, psychology, history, and other disciplines into one.
Reasons Why You May Need a Degree
Credibility and Knowledge Foundation
Having a degree can lend credibility to a trader, showcasing a solid foundation of knowledge in finance and market principles.
Formal education may provide understanding of the theories and concepts in finance, economics, and business, which can be beneficial.
Meeting Employer Requirements
Many trading firms and financial institutions have set educational qualifications as a prerequisite for certain positions.
Having a degree can therefore open up opportunities and meet the employer requirements. This can facilitate entry into reputed organizations that prioritize formal education.
Sometimes, degrees act as a sort of filtering mechanism.
For example, it’s well-known in investment banking that there are “target schools” where most bankers come from.
When there are thousands of applications for one spot, requiring a degree is a simple way to start cutting the pile.
Significance of Undergraduate or Business School Reputation
For roles in investment banking, the prestige of the business school can be more critical than the specific curriculum studied.
Top-ranked MBA programs are preferred because they are seen as pools of highly accomplished individuals – with the educational institution doing a lot of the filtering for the company (via their admissions process and candidate’s aptitude to get through the program successfully).
Success in securing positions in recognized trading or investment banking firms can depend significantly on graduating from a top business school.
The firms that do accept directly out of school generally have to spend a significant amount of resources training new employees, given they don’t learn what they need to learn in school.
Access to Structured Learning
Pursuing a degree offers access to structured learning, where individuals can systematically acquire knowledge and skills under the guidance of experienced educators.
This structured approach can sometimes offer a more in-depth understanding compared to self-guided learning, preparing individuals better for a career in trading.
Networking Opportunities
Educational institutions often provide a platform for networking, where students can connect with peers and professionals.
This network can be a valuable resource in building a successful career, offering opportunities for collaboration and learning from experienced individuals.
Research and Analytical Skills
Formal education often emphasizes the development of research and analytical skills, which are important in trading.
Through a degree program, individuals can learn to analyze market trends and data effectively, helping them to make informed decisions in the trading sector.
Preferences
Some firms might have certain preferences.
For example, if the people making hiring decisions have advanced degrees, they might prefer candidates who also have them. This could be because they value the skills and knowledge that come with a degree or a particular degree, or it could simply be a bias based on their own backgrounds.
So, if you’re looking to get into trading or investment firms, focus on developing a strong understanding of market dynamics and financial analysis. But also consider the preferences of the firms you’re interested in.
If they value degrees, it might be worth investing in your education. But it’s also about your ability to learn, adapt, and make sound decisions based on careful analysis.
For example, let’s say you’re applying for a job at a firm where most of the decision-makers have advanced degrees (e.g., masters, PhD).
They might see your degree as a sign that you have the knowledge and skills they value.
But they’ll also be looking at your experience, your understanding of the markets, and your ability to make good decisions. So, while a degree can help, it’s not the only thing that matters.
In the end, focus on becoming the best trader or investor you can be. What matters most is your ability to learn, adapt, and make sound decisions based on careful analysis.
Transfers from Other Industries
Just about everybody knows someone with a profession that’s very different from their degree.
Some come to finance or develop an interest in finance late.
In trading and investment firms, you’ll find a mix of individuals, including some with advanced degrees, even in fields like theoretical physics.
These degrees might not seem directly related to finance or investing, but in certain contexts they can be valuable or at least, as we mentioned earlier, signal a certain quality of talent.
People with these backgrounds often bring unique skills and perspectives that can be applied to quantitative modeling of markets and economies.
For instance, a theoretical physicist is trained to think about complex systems, develop models, and analyze data.
They can help in understanding the complexities of financial markets, developing models to predict market movements, and analyzing vast amounts of financial data.
So, someone with a background in theoretical physics might find opportunities in roles like quantitative analysis or risk management at a trading or investment firm.
But it’s not just about the technical skills. It’s also about adaptability and the willingness to learn new things.
Someone coming from a different field might see things differently, challenge existing assumptions, and bring new analytical frameworks.
This can be valuable in a field like investing, where the ability to think differently and see what others don’t is a key to success.
However, making such a transition isn’t always easy. It requires a lot of learning and adaptation.
Financial markets work a lot differently than most other systems. Markets are complicated.
They’re a lot more complex, deeper, and nuanced than most think.
The person needs to understand the financial markets, learn about different financial instruments, and understand the business side of things.
It’s a challenging path, but it can also be a rewarding one.
Related:
Most Financial Professional Have a Degree, But…
Most people working in so-called high finance have college degrees, but a majority will tell you that they didn’t get a whole lot of value out of the academic part of it or the experience, in general.
A lot of the information you’re taught may be outdated, irrelevant, or simply wrong and won’t teach practical, monetizable skills that are useful for an employer or for an entrepreneur running their own business.
Most of the skills they learned came from their actual experience working in the industry learning how to solve real-world problems. The education and training then ends up falling on the employer (if they go into salaried work) because they didn’t learn very much that’s actually useful and prepares them for employment.
In some branches of finance (e.g., hedge funds, private equity), some firms won’t hire directly out of undergraduate or MBA programs because they haven’t developed the skills they’re looking for because they simply aren’t taught in schools.
They would prefer that an investment bank, asset manager, or some other firm hire them first instead to reduce the cost of training and cost of hiring wrong.
And even those firms that hire for entry-level don’t particularly care about your curriculum, but rather the potential and attributes of the candidates and being able to cost-effectively hire out of a particular talent pool.
Some financial professionals, like financial advisors or accountants, learn practical skills through CFP or CPA training, which is independent of traditional university education.
Some asset management firms value the CFA credential a lot because it shows a strong academic understanding of finance, while other branches of finance find zero value in it.
Even roles like quantitative finance, which has a more academic bent to it, there’s a lot of variety and a lot of it will be a function of self-teaching or learning through real experience rather than theoretical models
Academic models are simplistic and flawed, and the adversarial and technologically intensive nature of the work means many models and operating procedures become outdated quickly and adding value requires a lot of creativity, synthesis, vision, and other cognitive abilities that aren’t typically valued, developed, or rewarded well in an academic environment.
Variation in Preferences Among Trading Firms
The skill sets investment firms prefer vary widely.
Finance is not a profession with a strong academic foundation (and is still lacking), as it’s always been more commercial.
Even in the more academic parts of finance like quantitative finance, the models are developed within industry, not among academics, who aren’t generally practitioners (it’s not their job) and are resource-constrained.
There is little incentive for industry professionals to share their work, as it represents a competitive edge.
Most academic understanding of what is used in markets flows through to them much later and in a more trivial way. Academic finance also doesn’t rely on industry funding and patents are not a thing in finance.
Credential Preferences
Some examples:
- Some firms strongly emphasize the CFA credential; others don’t value it at all. (Example: Long-only mutual funds)
- Some prefer advanced degrees in quantitative disciplines. (Example: Quant funds)
- Some prefer those with an investment banking background. (Example: Private equity funds)
Finance Certifications for Traders: A Quick Guide
Finance certifications can be an excellent way for traders to gain specialized skills, enhance their credibility, and stand out in competitive markets.
While not a substitute for hands-on experience, they can provide a structured approach to learning and demonstrate a commitment to professional development.
Here are some popular certifications for traders:
Chartered Financial Analyst (CFA)
The CFA designation is highly respected in finance and covers topics such as portfolio management, financial analysis, and ethical standards.
Though intensive, it’s ideal for traders looking to deepen their market knowledge and expand into roles like portfolio or risk management.
It’s often viewed as or more favorably than bachelor’s and even master’s degrees in finance in terms of having a strong academic understanding of finance.
Certified Financial Technician (CFTe)
Offered by the International Federation of Technical Analysts (IFTA), this certification is perfect for traders focused on technical analysis.
It emphasizes charting techniques, patterns, and market psychology, which is important for short-term trading strategies.
Financial Risk Manager (FRM)
Administered by GARP, the FRM designation focuses on risk analysis and management, a critical aspect of trading.
It’s well-suited for traders involved in derivatives or other high-risk financial instruments.
Series Licenses (e.g., Series 7, Series 57)
Required in the US for individuals trading on behalf of clients, these FINRA-administered licenses validate knowledge of securities regulations and trading principles.
Algorithmic Trading Certificates
Specialized courses, like those offered by QuantInsti or other fintech platforms, focus on programming, machine learning, and algorithmic strategies, essential for modern electronic traders.
Benefits of Certifications
- Skill Development – Certifications provide a comprehensive understanding of financial markets, tools, and strategies.
- Credibility – They signal expertise to employers and clients.
- Networking – Many certifications include membership in professional organizations, offering valuable connections.
While not mandatory, these certifications can give traders a competitive edge in interviews and complement practical experience in financial markets.
The Nuances Involved
Let’s say someone is considering getting a college degree.
Don’t be swayed by generic statements like “everyone needs it” or “student loans are just part of life.”
Make sure you’re not being misled by people who don’t understand your goals and passions.
It’s important to do the cost-benefit analysis. Spending the time, energy, money/debt/interest on a degree will come at the cost of alternatives.
And even on a more fundamental level, think about what are your goals, what you really want in life, what you’re passionate about, and what you want to achieve.
Think about your current goals. Are they clear and well-defined? Do they align with your passions and values? If not, what changes can you make to ensure they do?
Conclusion – Do You Need a Degree to Be a Trader?
It depends.
It’s dependent on various factors including individual circumstances and specific firm requirements.
While a degree can provide a solid foundation of knowledge, credibility, and access to structured learning and networking opportunities, it’s not always a prerequisite for success in trading.
Many successful traders have learned primarily through self-study and hands-on experience in the markets. What’s most important is having a strong understanding of market dynamics, being able to analyze financial data, and developing effective trading strategies.
However, it’s worth noting that having a degree in a related field like finance, economics, or business could potentially provide a solid foundation for a career in trading.
If you’re self-employed you can often do whatever you want.
The decision to pursue a degree or opt for alternative or more hands-on learning routes should be based on individual goals, learning preferences, and the specific requirements of the career path chosen within the trading sector.
Ultimately, what matters most is one’s ability to learn, adapt, and make sound decisions based on careful analysis.