Top 11 Capital Markets and Financial Markets Books
One of the questions I'm most frequently asked about are the kinds of books that folks should be reading if they're interested in sales and trading or the financial markets in general.
While there are many books on finance written for a general audience - which really got kicked off with the publishing of Liar's Poker by Michael Lewis - you should be wary about reading these kinds of books for any purpose beyond entertainment.
These kinds of books simply don't paint a representative picture of what sales and trading is these days (arguably they don't even capture what S&T was like decades ago, but are rather overly embellished accounts). Further, these kinds of books don't really teach you anything about market structure, the kinds of products that make up an asset class, the roles of various players, etc. Rather they just offer good entertainment and will leave you with only the illusion of having gained insight into the inner machinations of how high finance operates.
With that being said, reading capital markets or financial markets textbooks - like you may have been required to do in college - will likely provide no greater practical clarity than reading popularized finance books given how theoretical they tend to be.
Fortunately, over the past decade there's been a new crop of books written by industry practitioners. These books are made for a general audience, but have the aim of explaining how their area of finance practically operates as opposed to telling stories out of school or explaining theoretical concepts.
In the compiled list below I try to provide good coverage of every major asset class you'll find on a trading floor: equities, credit, FX, rates, and mortgage-backed securities. What I've tried to do is pick relatively short and accessible books that explain the market structure and market dynamics of these areas generally, instead of more theoretical things that have no real importance to what you need to be concerned with day-to-day.
The only area that I don't really touch on in much depth here is commodities because there's no underlying market structure that underpins all of commodities. So, if you're interested in one specific area of commodities like power trading, natural gas trading, etc. you'll need to read up independently on them. Further, commodities trading - especially physical commodities trading - is not something that most large investment banks are still doing in 2021 and 2022.
Capital Markets and Financial Markets Books
Below are the top eleven capital markets / financial markets books that will give you meaningful and practical preparation before entering onto the trading floor. I've tried to only highlight books that are reasonably short and reasonably accessible to a general audience.
One of the largest areas on any trading floor will be dedicated to interest rate markets (which is referred to simply as "rates").
The rates area will contain desks focused on government bonds (called treasuries in the U.S.), interest rate swaps, swaptions, inflation-protected securities (called TIPS in the U.S.), and money-markets.
The book that Jha has put together is the singular best practical resource to quickly get up to speed on all the products housed under rates. Jha graduated from Harvard and was previously on J.P. Morgan's Fixed Income Strategy Team (a research group, not a S&T group).
Interest Rate Markets is worth reading even if you aren't overly interested in joining a rates group. The reason being two fold. First, Jha's treatment of interest rate swaps is excellent and the same principles that underly interest rate swaps apply to all swap-related products (whether in credit or FX). Second, almost everything in high finance is somewhat connected to rates (e.g., FX is sensitive to interest rate movements, credit is sensitive to interest rate movements, mortgage-backed securities are sensitive to interest rate movements, etc.).
So, having a sound understanding of rates will help your understanding of how to think about, analyze, and interpret what you're seeing in other asset classes you may be more interested in.
If you're looking for a slightly more advanced book that gets more into derivatives, then I'd recommend Interest Rate swaps and Other Derivatives by Howard Cobb. However, only move onto that book if you've really internalized and understood Interest Rate Markets.
As you no doubt already know, the activities of the Federal Reserve are one of the primary drivers of the price action in every asset class. This is especially true when we have aggressive monetary policy in place, which we've largely had through the entire period following the great financial crisis.
Joseph Wang - who has a J.D. from Columbia and a MSc in financial economics from Oxford - spent five years on the open markets desks of the Federal Reserve. This is the desk tasked with executing the policy prescriptions of the Fed (e.g., buying or selling assets on the open market).
This gives Wang a very practical - rather than theoretical - insight into how Fed policy is actually implemented and what ramifications it has on both market structure and market participants.
This book - published in 2021 - is just over 200 pages and is packed with insights into how the modern Fed operates. It's probably the singular best book I've read on how policy prescriptions practically impact financial markets (primarily on the short end of the curve).
This book is worth reading regardless of what area of the trading floor you're interested in, because Fed policy is such a driver of the price action observed in almost every asset class.
Note: Wang also writes the excellent Fed Guy blog, where he periodically posts on what the Fed is doing and how its impacting the rates markets. I highly recommend it.
Another slim book - that's just over 100 pages - is The Federal Reserve and the Financial Crisis. This is a book that distills some lectures by the former Fed Chairman Ben Bernanke. It's a practical overview of the Fed's actions during and after the great financial crisis and is worth reading to get an overview of how policy was set and implemented during that period.
Note: If you're interested in the great financial crisis and the fiscal and monetary policy decisions made during the time, a deeply enjoyable book that tells the story is Stress Test by Timothy Geithner (former president of the New York Fed and former Secretary of the Treasury). This won't give you the practical understanding of markets that the other books listed above will, but it's a beautifully written book.
There are actually quite a number of books on the credit space that are reasonably accessible and worth your time. Part of the issue, for the purposes of this book list, is giving you just one book that provides coverage of credit from high-yield bonds to syndicated loans.
Leveraged Financial Markets is s a decade old now, but provides great coverage of the wide variety of instruments that make up the credit space. It details what is important to know about each product and who the major players are who dabble in each product.
As I've talked about through the Sales and Trading Guides, there is a wide divergence in the type of clients you deal with in the credit space. With institutional buyers making up the vast majority in the investment grade and high yield space, and fast money players (e.g., hedge funds) making up the majority in the distressed space.
If you've heard of one book that I've listed here, it's probably this one. Ray Dalio is the iconoclastic founder of Bridgewater Associates, the largest hedge fund in the world.
Bridgewater has become quite diverse as their AUM has grown. However, at its core Bridgewater has always focused on making global macro trades based off of fundamental beliefs on how asset classes are connected and how they move in relation to others.
Every other book in this list focuses on narrow asset classes and the mechanics that govern their respective markets. What this books does is not describe the mechanics of specific products (e.g., equity derivatives or interest rate swaps) but rather how asset classes are connected and how they move based off of global macro events (e.g., interest rates rising, inflation increasing, productivity increasing, etc.).
Of course, what Dalio lays out in his book is not gospel. No one truly knows how asset classes will always move in relation to others and what effects fiscal and monetary policy will invariably have on certain asset classes.
However, what Dalio does in the Big Debt Crisis is look over centuries of financial market activity and then he tries to come up with practical theories for how financial markets truly work. I don't agree with all of it - in particular his views on credit expansion impacting inflation strongly - but it is all deeply thought provoking and worth reading to get a glimpse into a mind that has thought about these things since the 1970s.
Mortgage-backed securities remain essential to the proper functioning of the housing market in almost all developed countries, but especially in the United States.
If you aren't interested specifically in MBS trading, then there's no need to read this book as it won't offer too many lessons for other areas of the trading floor.
However, within the MBS-space Fabozzi has a legendary status. His book has been the go-to for everyone entering into the MBS space and on any trading floor you'll see multiple dusty copies floating around.
This is by far the biggest book I've listed here - clocking in at over 800 pages - so it's truly only something you should read if you want to work in the MBS space.
If you're just curious about mortgage-backed securites generally, I put together a Q&A guide (along with a great primer from an investment bank) in the Sales and Trading Prep Course.
Within the FX space, there are countless books that have been written. This is largely because while no retail investors trade rates in their spare time there is a large and very active retail FX trading community.
This is all to say that when picking up any book on FX, you need to make sure it's not designed for retail investors or else you're going to be subjected to a lot of misinformation.
The Art of Currency Trading is the best book on FX I've seen largely due to the author's background. Brent was the head of G10 spot trading at Citi and then got poached by HSBC. In Brent's book he gives a wonderful and accessible overview of FX trading - from the perspective of a market maker at a large investment bank - which will ensure that you develop the right perspective and know the correct terminology for the trading floor.
Unlike in investment banking or equity research, what's important to know when it comes to equities on the trading floor is not really the fundamentals of valuation.
For sales and trading purposes everyone within equities will need to have a firm grasp of derivatives (unless, arguably, you're on the cash equities desk, but even on that desk structuring and derivative knowledge is important in my view).
When I did my summer analyst stint at Goldman Sachs, within Global Markets, Option Volatility and Pricing was always the most recommended book. Like with Interest Rate Markets, it's written more as a traditional book than a textbook and if you can internalize the concepts within it then you'll be exceedingly well prepared when you hit the desk.
While there are other books that cover equity derivatives in even more depth, if you're interested in equities within the context of sales and trading it's worth focusing your time on Natenberg so that you develop the right mental models right away.
As I mentioned in the preamble, it's very hard to give book recommendations for the commodities market because the market is made up of so many unique products all of which have different clients and different market structures.
If you're just interested in financial markets and how they connect together generally, I'd focus on understanding rates and reading Dalio's book instead of delving into commodities.
However, if you're at all interested in oil I would recommend Oil 101 by Downey. It provides a great history of the space, the type of products that comprise the oil and gas market, the various market structures that underpin each product, and how each product is individually traded.
Of all the major financial markets, the commodities market is by far the most opaque.
The World for Sale is a phenomenal book, just published in 2021, that covers some of the larger commodities trading scandals over the past few decades involving major commodities trading firms like Glencore, Trafi, and Cargill.
While this is a book meant for a general audience (so it doesn't get into market structure or anything more complex), it will provide you with a general knowledge of the types of products that comprise commodities generally and who some of the major players are. In particular, The World for Sale focuses on firms that operate in the physical commodities space.
Note: Keep in mind that many major investment banks don't have dedicated commodity trading practices anymore. Even holdouts like Goldman have deemphasized commodity trading in recent years and some, like J.P. Morgan, have got out of the physical commodities business (they sold their business in 2014 to Mercuria).
The Rise of Carry is more of a general book that's aimed at an audience that has a reasonable level of background knowledge in financial markets.
The reason why I'm listing it here is that in just over 200 pages the book aims to connect how certain practices - like volatility selling and liquidity constraints - have given rise to a situation in which we observe outsized volatility in all markets whenever there's a modestly negative global macro event.
This book ties together rates, equities, and FX to try to tell a story of how the rational actions of institutional players - like large asset managers, pension funds, and hedge funds - have created what appears to be often irrational market moves.
If you're gearing up for interviews - or are about to start full-time in S&T - this would not be the book to read. You should focus more on getting as knowledgeable as possible on the asset class you'll actually be working in. However, if you have time I would certainly recommend this book.
Of course, I've also put together the Sales and Trading Prep Course, which was my way of trying to help new entrants to the industry quickly get up to speed on the vast diversity of desks that comprise S&T and what exactly they do.
Contained within the course are a series of "Desk Guides" where I try to give you the basics on what each desk does, what terminology you need to know, and also provide primers developed by investment banks for further reading.
I put an entirely irrational amount of time into creating the course, because it's what I wish I had before starting in S&T and it's been incredibly rewarding to see how much it's helped people. I also charge less than what most books cost, because my intention is to try to help and not to make much from this.
If you're at all interested in sales and trading, I think you'd really enjoy the course. It was really designed to be e a more efficient way to get up to speed than reading half-a-dozen or more books.
The books above broadly cover the major asset classes that make up the capital and financial markets. As I mentioned in the preamble, I've tried to pick relatively short books that will give you a good sense of how each asset class operates without getting into textbook-level minutia (which is either irrelevant or best learned on the job).
If you're gearing up for a job in the financial markets - in particular within S&T - be sure to check out the long list of sales and trading interview questions I put together.
Also, keep in mind that the books above, even if they're short, are going to be quite dense so don't expect to go through them quickly. You may feel a bit overwhelmed going through them the first time, but just take your time. It'll all come together eventually.