A Phased Approach to Learning
This roadmap is designed to build your knowledge from the ground up. Follow these phases to ensure a strong and comprehensive understanding, regardless of your target role. While all phases are important, you can spend more time on the phase most relevant to your desired career path.
- Phase 1: Master the Foundations - The "What"
- Phase 2: The 'Quant' Layer: Pricing & Risk - The "Why"
- Phase 3: The 'How It Works' Layer: Market Mechanics - The "How"
- Phase 4: Role-Specific Preparation & Interview Strategy - The Application
Priority 1: Big Picture / Basic Concepts
You must be able to explain what a derivative is, its purpose, and the fundamental differences between payoff types (linear, convex, etc.) and trading venues (Exchange vs. OTC) from memory.
Priority 2: Core Instruments
Deeply understand the mechanics of Forwards, Futures, Options, and Swaps. You should be able to draw payoff diagrams, explain who uses them and why, and walk through a simple example for each without hesitation.
Self-Test Questions for this Phase:
- "Explain the difference between a forward and a future."
- "Draw the profit/loss diagram for a short put option."
- "Walk me through the cash flows of a plain vanilla interest rate swap."
Focus Area: Volatility, Surfaces, & Calibration
This is where you move from mechanics to valuation. Understanding volatility is the key to understanding derivatives pricing.
Key Concepts to Master:
- Implied Volatility: Know what it is and why it's important. Be able to explain the Volatility Smile/Smirk and why it exists in equity markets (crash risk, demand for puts).
- The Greeks: You must know Delta, Gamma, Vega, and Theta. Be able to explain what each one measures and how it's used in hedging.
- Arbitrage Constraints: Have a high-level understanding that a vol surface must be arbitrage-free (e.g., no calendar or butterfly arbitrage).
For Quant/Trading Roles: Go deeper. Understand calibration concepts, parametric models like SVI/SABR, and the difference between sticky-delta and sticky-strike conventions.
This phase covers the entire ecosystem that supports derivative trading. For any operational, risk, or middle office role, this is the most critical area.
Focus Areas to Connect:
- Clearing, Settlement & Post-Trade: The role of a CCP, the margin waterfall, and the settlement process.
- Market Microstructure: Order books, execution algos (VWAP/TWAP), and HFT.
- Operations, Middle & Back Office: P&L attribution, IPV, lifecycle events, and reconciliations.
- Common Conventions: The ISDA/CSA framework, day counts, and regulatory identifiers (LEI/UTI).
Self-Test Questions for this Phase:
- "Walk me through the lifecycle of a cleared OTC swap, from execution to settlement."
- "What is a CCP and what is its primary role in mitigating risk?"
- "Explain the role of the Middle Office in P&L attribution and independent price verification."
Tailor your deep-dive study to the role you are interviewing for. While you need a general understanding of all topics, your expertise should align with your target job.
| Role | Key Topics to Emphasize | Typical Interview Question Style |
|---|---|---|
| Quant Analyst | Volatility & Calibration, Advanced Pricing Models, Greeks. | "How would you model the volatility surface for an exotic option? Explain your arbitrage checks." |
| Trader | Core Instruments, Greeks, Market Microstructure, HFT, Hedging Strategies. | "You are long gamma. What is your market view and how would you manage the position?" |
| Structurer / Sales | Core Instruments, Exotics, Payoff Types, Client Hedging Needs. | "A corporate client is worried about rising interest rates. Propose and explain a suitable hedging solution." |
| Risk Management | Margining (IM/VM), CCPs, Greeks, Stress Testing, VaR. | "Explain how a CCP's risk waterfall works during a member default." |
| Operations / Middle Office | Clearing & Settlement, Lifecycle Events, Reconciliations, ISDA/CSA, P&L Attribution. | "You have a trade break with a counterparty on a swap's reset date. What are the steps you would take to resolve it?" |
Behavioral & Market Questions
- Prepare Your Story: Be ready to answer "Why derivatives?", "Why our firm?", and "Tell me about a time you solved a complex problem." with clear, structured examples.
- Have a Market View: Be aware of current market trends. What are interest rates doing? What is the level of the VIX? Have an opinion on a recent market event. Read the Financial Times, Wall Street Journal, or Bloomberg daily.
- Practice Brainteasers: Many firms still use logic and probability puzzles. The goal is to see your thought process, so talk through your logic out loud.
- Ask Good Questions: Prepare insightful questions for your interviewers about their role, the desk's strategy, or the biggest challenges they face. This shows genuine interest.