Whether you have thought about it or not, Excel serves as a lingua franca in finance, a common language for traders, analysts, operations, or IT staff in a financial setting. Regardless of which area you come from, it can be used to communicate very complex ideas amongst one another, just as Frankish once served Charlemagne in early European history. Excel provides a particular framework to discuss issues or problems as they arise, because everyone involved in creating software in a financial setting know Excel. It can be used to define requirements, and also as a delivery platform for solutions.

Even though there have been many attempts to move away from using Excel while trading, many traders and analysts enjoy the freedom which Excel gives them. A workbook is the ultimate clean slate. It can be used to download some data, analyze it, and then act on it. Each time this is done, a completely new angle can be explored: a new strategy, a new sector, a new asset class, or a quantitative measure that may be useful. Conversely, developers and other IT staff see Excel as a piece of software which works according to standards which they know, and which they can customize or to which they can add functionality. Due to the VBA development environment, functionality is easily added directly into a workbook. It is possible to quickly go through a rapid application development cycle in a workbook. It is easy to make specialized workbooks for specific functions work together specific types of data and analyze them systematically, with the database connectivity and additional programming that deconstructs the data. It can then easily be forwarded to other people involved.

On its own, Excel is excellent as a prototyping tool. When you have a fuzzy sense that a particular approach would be useful, but you want to define exactly how it might work, you can use Excel to clarify your intentions. By prototyping, I mean, exploring a specific example, or an incomplete version of the final product, in order to define full requirements. This is particularly useful when financial staff needs to work with IT. Front-office guys can create the relevant tables and formulas which precisely define how they want an application to work. This can then be taken by software engineers, is transformed into a highly functional unit of software. If there are any ambiguities, the prototype can serve as a platform for discussion. As a result, you can argue that Excel is somewhat of a lingua franca within finance, which everyone knows, and everyone can use as a basis to communicate complex requirements.

It is even possible to say that certain areas within finance require a good knowledge of Excel. Certain types of financial analysis, while they can be done by hand, are expedited by the analytical environment of the workbook. Practically, every serious vendor of financial software or data provides an Excel add-in version of their software or allows users to export data into Excel, in order to allow users to customize it to their environment. For example, Monte Carlo analysis can easily be done with an add-in. The results can then be subsequently analyzed, after all simulations are complete, directly within Excel. Even more traditional ways of looking at financial data are simplified when everything is put together in one worksheet. The tabular structure which Excel provides, forces the user to think critically about the data he or she is analyzing.

As you can see, Excel is ubiquitous in finance for a couple of reasons. People know how to use it. Various functions within banks or funds can apply it to different types of solutions, and it can be used to bring together people of a variety of skill sets. It is flexible, and therefore it is best used for rapid prototyping. But most of all, it is a platform that helps us bring everything together, to communicate, and as a result: to create.

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