What does a Derivatives Analyst do?

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  • Written By: John Lister
  • Edited By: Bronwyn Harris
  • Last Modified Date: 16 November 2019
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A derivatives analyst works in one of the most complicated areas of financial trading. A derivative is something which is bought and sold, but is not a specific product in itself, such as stock in a company or a commodity like gold. Instead a derivative is something which derives its value from the price of something else.

One example of a derivative is a futures contract. This is a contract between two parties in which one party agrees to buy a commodity or financial instrument from the other at a set price at a pre-determined future date.

The idea of having such a contract is that it’s possible the market price will be higher than the agreed purchase price when the contract comes due. The buyer can then immediately sell the stock at a profit. However, if the price is the same or lower, the buyer will usually not exercise the option and will have wasted whatever money they paid for the contract. Contracts are often bought and sold to new investors several times before they come due. The price will depend on how confident people are that having the contract will be profitable when it comes due.


There are many other types of derivatives, including those based on the overall value of a stock market on a set date, or on currency exchange rates. Some derivatives give the holder a right to sell something rather than buy it. With so many different set-ups, and so many factors affecting the profitability of holding a derivative, there is a vast amount of data to take into account.

The main role of a derivatives analyst is to gather and analyze this data. This is carried out to provide useful information so that traders and managers can make more accurate and informed decisions when deciding upon investments. Some derivatives analysts will also be required to produce reports for clients.

The role of derivatives analyst does not usually have the same type of mandatory qualifications and examinations such as teaching or medicine. A proven track record in related activities can be as important as formal qualifications. However, many firms have particularly wide lists of requirements for potential employees.

Many firms will demand some form of degree in a related subject such as mathematics or actuarial science. Most firms will require formal training in software used by derivatives analysts. In some cases, candidates will need to have programming skills so that they can develop software to analyze data in new and often more complicated ways.

Salaries for a derivatives analyst can be very high. Like many jobs, the salary can vary immensely from region to region. For example, a derivatives analyst in New York may earn at least 50% more than one in a more rural state such as Idaho. This is largely because the biggest firms are based in major financial centers.

However, salaries for derivatives analyst posts can be very volatile. In the space of the two years leading up to June 2009, the average salary for vacant posts dropped by around 15 per cent before recovering to roughly the same level as it started. This is likely a sign that jobs may be harder to come by when there is a lack of confidence among investment firms.


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Post 2

As the above article described, a "Derivatives Analyst" makes forecasts on the various derivatives markets. They -- derivatives -- seem intangible to me and much more difficult to understand than the buying and selling of company stocks, for example. Yet, I feel like I should understand this area more particularly when it's been described as a market of over a quadrillion dollars! Does anyone have any tips to help me understand this topic better?

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