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How do you become a trader in an investment bank?

How do you get a job in sales and trading in an investment bank?

  • Sales and trading is a very results-focused job where good or bad performance is immediately obvious
  • To succeed, you’ll need energy, concentration and coding and math skills
  • Sales and trading jobs working with products like fixed income, equities or derivatives are very well paid, but job security is limited. A single bad year, and you could be replaced.
  • Entry to the best trading desks is super competitive; investment banks tend to hire a lot of juniors and promote the ones who perform best.
  • The best salespeople and traders go on to work for hedge funds or family offices. If you’re not in this top echelon, your next move can be less clear.

If you go into the Sales & Trading division of an investment bank, then what you’ll fundamentally be doing is ‘market making.’ This is the term banks use for ‘making markets’ – or, to put it more simply, buying and selling. Sales and trading is also often referred to as “Global Markets.” It’s the part of an investment bank which connects investors with speculators, buyers with sellers and which sometimes stands in the middle to take a piece of the action for itself.

What will you buy and sell in a sales and trading job? The answer is ,ore or less any kind of financial product.  Some banks will even have “physical commodities” operations where actual metals, hydrocarbons and shipping services are traded as if they were stocks and bonds.  But the three main categories of tradeable securities are “equities” (shares, which represent part ownership of companies), “fixed income” (any sort of tradeable debt, like bonds) and “derivatives” (securities where nobody literally owns anything but the two sides agree a contract to make payments to one another based on a predetermined formula).  Sales and trading jobs are iconic: they’re where you’ll see people shouting on trading floors during market meltdowns. Sarah Thomas, a Vice President at Deutsche Bank, says that “When people think of investment banking, they tend to imagine the trading floor. Although sales, trading and structuring is just one part of a bank’s work, it is where a lot of its commercial activities take place.”

Before the financial crisis of 2008, banks traded a lot on their own accounts and tried to earn profits for themselves in the process. These days, they mostly trade on behalf of clients. Who are these clients? They tend to be big investors – pension funds, specialised investment companies and organisations representing very wealthy individuals.  The clients may want to invest cash in securities, raise cash by selling securities or alter the risk profile of their investment portfolio.  In order to do this, they need to find someone to buy what they’re selling or to sell what they want to buy.  Since investors don’t usually have the scale or resources to have their own seat on the stock exchange, or want to take the time and trouble to search the world for the best deal, they use middlemen.  The salespeople and traders in banks are these middlemen; they will either facilitate a deal between two investors, or make the deal themselves and then look for somebody to move it on to.

What’s the difference between sales jobs, trading jobs and sales trading jobs?

When you watch the prices scrolling across the bottom of the screen on CNBC or Bloomberg News, or see them reported in the newspaper the next day, it’s not obvious how those prices are reached.  Each one of them, however, is the result of a specific bargain agreed at a specific time and price between an investment bank and a client.  The job of making that bargain happen has two parts to it.  First, there’s the person who makes contact with the client, who tells them what deals are available and takes the order (the “sales”) and then there’s person who goes out into the market and executes the transaction at the best price possible (the “trader”). 

Generally, sales jobs in investment banks are slightly more strategic than trading jobs. In sales, you have to understand the big picture and to maintain relationships with your clients.  The better you understand the big economic drivers and market trends, the more likely you are to be able to anticipate the investors’ needs and to give them useful advice.  “You need to be a trained psychologist … everyone needs constant advice and affirmation as well as investment knowledge”, according to Colin Hector, an experienced equities salesperson who’s worked for banks like UBS, Deutsche Bank and Credit Suisse.

Trading jobs are more focused and intense. To be a trader, you’ll need to understand the structure of supply and demand at any given moment in time; some of the best traders actively avoid information about longer timeframes as a distraction from what they can see happening on the screen in front of them.  

Some people fuse both roles and are “sales traders.” Sales traders work with clients who want to make a lot of transactions quickly. They are generally salespeople who deal with very active clients, often making dozens of phone calls a day while also keeping a similar number of chat windows open.  Sales traders usually operate in “liquid” markets, meaning those where there is a high constant level of “order flow”.  Examples of this kind of market might be in US Treasury bonds, blue-chip equities or options on the biggest stock market indices. 

What’s the difference between jobs trading equities, fixed income products or derivatives?

The broad categories of equities, fixed income and derivatives cover a wide and ever-growing variety of financial markets, each with its own specialist jobs.  Often, derivatives sales and trading will be divided up between the Equities and Fixed Income divisions, with derivatives traders and salespeople working alongside colleagues who deal in the actual markets which the derivatives contracts are linked to (the “cash” markets). 

It’s easiest to illustrate with an example.

Some investors might just want to buy and sell shares. Simple shares are known as “cash equities”.  But sometimes, a hedge fund might want to buy a contract that gives them positive exposure if the whole stock market goes up, but which also pays a premium for insurance against the market falling.  Because it has payouts linked to another event, this is an “equity derivative” – it’s an index option.

Products like that would usually be the responsibility of a specific equity derivatives desk with its own salespeople and traders (and sales-traders).  But in most banks, the derivatives desk would be physically located next to the cash equities sales and traders because although it’s a separate market, it’s not a completely separate market – there’s value in making it easy for people from the two trading desks to talk to each other and sometimes switch jobs from one to the other.

On the Fixed Income side, the variety of products is much greater, but the same principles apply.  Government bond trading is all about anticipating movements in interest rates, so they tend to work together with economists and with people who trade interest rate derivatives (“swaps”).  The interest rate derivatives sales and traders will often be expected to cover more than one currency, so they will be located near to the foreign exchange sales and traders.  Commodities and commodity derivatives are more of their own little world, so they are often managed separately.

Sales and trading of debt issued by companies (“corporate bonds”) is a very different business.  Unlike equities and government bonds, corporate bonds often don’t trade very often – a big pension fund or insurance company will buy the bonds when they are issued, and then hold on to them for years at a time, only selling when they need to raise cash or if the issuing company gets into financial trouble.  That means that corporate bond salespeople and traders need to be able to go out and look for buyers and sellers in order to make transactions happen, rather than just looking at a screen where thousands of orders are placed every minute. 

There’s a similar distinction in the world of derivatives trading  – between “flow” products where things are pretty standardised and orders can generally be matched quickly and “structured” products where the bank designs a contract specifically for one client’s needs.  As Sarah Thomas at Deutsche Bank says, “Structuring teams provide products that are tailored to clients’ specialised needs. They might help an institutional investor achieve a required risk profile, or a corporate looking to acquire new equipment through financing.”

Some financial products are more susceptible to electronic trading (“electronification”) than others. The chart below, from a 2021 report on the state of the banking market by JPMorgan, shows the percentage of trades that take place electronically for different financial asset classes.

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What’s electronic trading? How is electronic trading changing sales and trading jobs?

In a lot of financial products  – particularly cash equities, short dated government bonds and flow derivatives of all kinds – trading is carried out electronically.  This means that rather than having a human being looking at a screen and matching orders, the investors are able to send a message from their computer system directly to the bank, which then uses its own system to query the stock exchange or other investors and then buys or sells the product automatically within a few milliseconds.  These electronic trading platforms are expensive to build but cheap to run and banks are doing their best to encourage clients to use them. Deutsche Bank's 'Autobahn' electronic trading platform can, for example, be accessed via an iPad app. 

Electronic trading systems work on algorithms. The algorithms built into electronic trading systems are usually meant to break up a large order into a lot of smaller ones, and to then use advanced statistical analyses to determine the best way to place those orders in order to complete the overall transaction at the best possible price.  Rupak Ghose, an electronic trading executive for ICAP plc, calls them “the robots that took over the industry … things were completely different when clients had to talk to the banks and pay commissions of 0.2% - now they send messages directly through the system and pay less than a tenth of that!”.

This doesn’t mean that there is no role for human beings in trading; even in very high-volume flow products, clients often want to speak to someone who can give them “market colour” and advice on how to manage their orders to get the best price.  However, the rise of electronic trading platforms does mean there are fewer opportunities for humans than there used to be (famously, Goldman Sachs’ cash equities trading desk used to employ around 600 people in New York in 2000, but was down to less than five by 2017 after electronic systems took over). It also accounts for the fact that many traders these days have taken on sales responsibilities.  The biggest banks are pouring money into electronic trading platforms that let clients get direct access to their systems – and this may end up diminishing the role of specialist flow traders even further.  Colin Hector puts it this way – “as a salesman, you can’t beat the computers when it comes to knowing what orders are out in the market. You have to be able to guess what orders are going to be placed next.”  However, it’s interesting to note that when markets get really volatile, as they did in the early stages of the COVID-19 pandemic in 2020, clients still seem to want to get on the phone and talk to a human being.  During that period of market volatility, human traders seemed to do much better than automated systems in dealing with market conditions that had never been experienced before….

The rise of electronic trading platforms driven by algorithms has affected the kinds of jobs that are on offer in sales and trading.  Traders in particular are now being encouraged by banks like JP Morgan to learn how to code in languages like Python in order to be able to specify the details of complicated derivatives products and the steps needed in order to trade them.  “Algorithmic traders” have come into existence. They are technology specialists and computer programmers with trading knowledge who write algorithms that can get orders executed at the best prices, and who develop better statistical models to choose the most efficient way to place orders. 

Skills you’ll need for sales and trading jobs

It’s no good going into sales and trading if you’re not a morning person. Markets open early every day, and you need to be in the office even earlier.  Rain or shine, summer or winter, the market is no respecter of hangovers and duvet days; at any given minute something could suddenly turn into a crisis.  Sales and trading jobs don’t tend to require the punishingly long hours that are associated with investment banking, but the hours can still be very intense. “It’s the kind of job that many people imagine they’d enjoy, but the reality mightn’t suit everyone”, according to Sarah Thomas. 

Sales in particular is a noisy, people-focused job which is more suitable for extroverts than introverts.  Even when markets are dominated by computers, the people making the decisions are human beings and successful salespeople need to be able to form relationships with them on a human level.  That doesn’t necessarily just mean dinner and drinks and meeting the clients’ families – some investors are strictly business.  But it does mean that you need to be able to talk to people and listen to them in order to understand what they want.  As Colin Hector puts it, “you need to have something to say, every single hour of the day … if there’s nothing happening, you have to be able to use your imagination”.

And finally, sales and trading jobs need concentration and attention to detail.  Some structured products and algorithmic roles need advanced quantitative skills. In all products and markets, it’s vital to get things right.  There’s not much room for “big picture” types in sales and trading; everything is either a profit or a loss, worked out to the last fraction of a cent. 

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Have a confidential story, tip, or comment you’d like to share? Contact: sbutcher@efinancialcareers.com in the first instance. Whatsapp/Signal/Telegram also available (Telegram: @SarahButcher)

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AUTHORDaniel Davies Insider Comment
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