Quant Finance Glossary

Essential concepts for quant trading, research, and interviews — explained clearly.

Concepts

Market Making

Market making is the practice of continuously quoting buy and sell prices for a financial instrument, profiting from the bid-ask spread while providing liquidity to other market participants.

10 min read

Trading ConceptsIntermediate

High-Frequency Trading (HFT)

High-frequency trading uses ultra-fast technology and algorithms to execute large numbers of trades in fractions of a second, profiting from tiny price discrepancies and market microstructure.

12 min read

Trading ConceptsIntermediate

Statistical Arbitrage

Statistical arbitrage (stat arb) uses quantitative models to identify and exploit temporary pricing inefficiencies between related securities, typically holding diversified portfolios of long and short positions.

11 min read

Trading ConceptsIntermediate

Pairs Trading

Pairs trading is a market-neutral strategy that simultaneously goes long one security and short a correlated one, profiting when the price spread between them reverts to its historical mean.

9 min read

Trading ConceptsBeginner

Proprietary Trading

Proprietary trading (prop trading) is when a firm trades financial instruments with its own capital rather than managing client money, allowing it to keep all profits from successful strategies.

8 min read

Trading ConceptsBeginner

Bid-Ask Spread

The bid-ask spread is the difference between the highest price a buyer is willing to pay (bid) and the lowest price a seller is willing to accept (ask), representing the cost of immediacy in financial markets.

6 min read

Trading ConceptsBeginner

Backtesting

Backtesting is the process of testing a trading strategy against historical market data to assess how it would have performed, helping quants evaluate strategies before deploying real capital.

9 min read

Trading ConceptsIntermediate

Mean Reversion

Mean reversion is the tendency of asset prices, returns, or other financial metrics to move back toward their long-term average after deviating significantly, forming the basis for many systematic trading strategies.

8 min read

Trading ConceptsBeginner

Efficient Market Hypothesis

The Efficient Market Hypothesis (EMH) states that asset prices fully reflect all available information, making it impossible to consistently achieve excess returns through trading — a theory that quant firms both challenge and exploit.

8 min read

Trading ConceptsBeginner

Algorithmic Trading

Algorithmic trading uses computer programs to execute trading strategies automatically based on predefined rules, enabling faster execution, reduced costs, and the ability to process vast amounts of data.

9 min read

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