Top 5 Goldman Sachs Sales and Trading Interview Questions
Goldman Sachs sales and trading (S&T) interview questions are some of the toughest and most varied on the street. This is especially true of the superday interviews where your three interviewers could come from any desk within Goldman's global markets division and ask wildly different interview questions.
Part of the reason why I created the Sales and Trading Interview series of guides is because there is so little information out there on not only the interview questions to expect, but what all the desks that are housed within the sales and trading division actually do.
What Goldman really wants to do - and I speak from personal experience having got a sales and trading summer analyst offer there - is make sure that you really know what you're getting into.
That means you need to demonstrate in an interview that you have contextual understanding of what various desks in the sales and trading division - or as Goldman calls it, the Global Markets division - practically do so you aren't flying blind when you begin.
This is viewed as being so important for two reasons.
First, the Goldman Sachs sales and trading summer analyst program is rotational in nature. You will rotate on three desks and you will need to rank what desks you'd like to be on (then desks will choose among those that ranked them highly).
Because of this, it's important that you have some preliminary interests. No one expects or wants you to say you're only interested in high yield trading, for example, as that would show quite a bit of hubris given that you haven't been on the trading floor yet!
However, they want you to demonstrate that you have a few different areas of the trading floor you'd like to rotate through and have good rationales for why.
This obviously requires having some basic background knowledge on what those desks trade and more importantly why those desks would be a good fit for your personality and skillset.
Second, while some sales and trading programs operate under the assumption that they can look at your background and figure out where you'd fit best, Goldman operates under the assumption that the summer analyst of full-time hire needs to figure it out largely on their own.
Therefore, when you come into an interview without a clear understanding of the desks involved and what they do then how is an interviewer supposed to figure out whether or not you'll figure it out once given an offer?
Successfully interviewing for a sales and trading position at Goldman requires a fine balancing act between showing off your understanding of what desks exist within Goldman and where you'd like to be, while also not coming across as arrogant or as being entirely decided on exactly what you want to do.
Goldman Sachs Sales and Trading Interview Questions
Below are quick links to the top five GS S&T interview question. Obviously, there are hundreds of potential questions, but this will give you an idea of the kinds of questions to expect.
This is a common introductory question that will serve as a jumping off point for more detailed product-specific questions. This is a great way for the interviewer to make sure that you don't think FICC and equities are desks, but rather that you know those are divisions within Global Markets at GS.
Below is what an ideal answer looks like. Remember your answers to any question should not be over two or three minutes given that your first-round or superday interviews are each going to be 25 minutes at most.
On any trading floor, including Goldman, you'd expect to see dedicated desks for investment grade credit, distressed credit, and municipal (muni) bonds.
Obviously, what is listed above are all from the FICC division within the trading floor. There's also the equity division that has a number of desks in there as well.
Investment grade credit involves primarily making markets for clients on investment grade bonds that are actively traded on the secondary market. IG bonds are traded by a wide variety of clients from institutional clients - like pension funds, endowments, etc. - to "fast money" clients like hedge funds or the credit arms of private equity firms. IG credit is often thought of in terms of a spread off of treasuries of an analogous maturity.
Distressed credit involves primarily making markets for clients in distressed debt securities. These are securities that have a "junk" rating (below BBB) and are defined by their usual illiquidity, price volatility, and the diversity of outcomes possible (for example, the companies that issued this debt could end up undergoing an out-of-court or in-court restructuring that adds a complexity to the valuation of these securities).
Muni bonds are bonds raised to finance projects that are in the public interest or represent a public good. Examples of these could be toll roads or electrical grid upgrades. These can either be backed by the revenue generated by the project itself, or the general taxing authority of the issuer. Muni bonds also have unique tax advantages whereby interest income is tax exempt, making a wide swath of clients interested in them. Muni bonds are also defined as having roughly 100,000 issuers so you have a real diversity in issuers.
With a traditional bond, there will be semi-annual coupon payments with the principal amount paid back in full at a defined time. With mortgage-backed securities you get a combined principal and interest payment monthly – as mortgages are paid monthly – and there can be prepayment of principal by mortgage owners (because if they have more cash one month they may pay more down on their mortgage).
This creates timing uncertainty for the cashflows coming in, which is distinct from a corporate bond where cashflow timing and amounts are certain (unless they default!). Further, mortgage holders, if rates have decreased, can completely refinance their mortgage, which takes one mortgage out of the pool that makes up the MBS. Or mortgage holders may sell their home to move to a new one, thus paying off their mortgage early. MBS holders must be willing to accept this cashflow timing uncertainty.
Another way to say this, perhaps more simply, is that if interest rates decline all of a sudden you may have expected $X in cashflows, but you’ll get $X*1.2 or something because more people are paying off their mortgage earlier than anyone anticipated (because of refinancing to get access to the better mortgage rates).
In any sales and trading interview, there are some facts that you're just going to need to have memorized. One of those facts is going to be the names of prominent people, like those who run the major central banks.
Some interviewers believe this is a good way to gauge whether you really are reading about markets in your spare time, because if you do you'd likely know these names.
- The Federal Reserve – Jerome Powell
- The European Central Bank – Christine Lagarde
- The Bank of England – Andrew Bailey
- The Bank of Japan – Haruhiko Kuroda
- The Bank of Canada – Tiff Macklem
This is a great question to suss out whether an interviewee really "gets" what a sales and trading desk does.
Some are under the naive impression that sales and trading involves taking proprietary bets on securities they think will go up in value. While at one time major S&T divisions - including famously at Goldman - had dedicated proprietary trading desks with the introduction of the Volcker Rule that is no longer the case.
Fundamentally, sales and trading desks are in the business of serving clients and managing risk. What this means more practically is that clients will come to a number of banks - including Goldman - looking to buy or sell a given amount of a security.
The role of modern sales and trading desks is to facilitate these trades at competitive levels and then manage the risk that the trade places onto the trader's book.
This is called, as you likely know, market making (you're making a market for a client). Ultimately, no desk in sales and trading is a pure market-making desk in terms of just buying securities from a client, then immediately turning around and selling what you bought and clipping and the bid-ask spread.
Every desk needs to have inventory and warehouses risk associated with that inventory. The warehousing of the risk and the positioning of the trader's book allows the trader to make money from non market making activity.
In more technical parlance, what regulators require is that most S&T desks have inventory that can provide liquidity to clients and that the inventory is held in anticipation of client demand, or as a result of client activity, and is not held purely due to a trader thinking a certain security will go up in value (as you can imagine, this is obviously a blurry area).
So desks make money first and foremost by providing liquidity to clients by making markets and second via the positioning of the desk's book of risk that arises due to client activity or the anticipation of future client activity.
Goldman in particular is a bank that focuses on serving clients almost regardless of what they want to do (even if it may result in a small loss being incurred). So you should emphasize in your answer to this kind of question that modern sales and trading is all about serving the client as without strong client activity no desk can maintain its operations for long.
Convertible bonds are often traded separately from high yield, distressed, or investment grade bonds. Often, it’ll be just one or two traders (who also operate as sales people) who deal with these bonds and they will often sit near equity teams, as opposed to credit teams.
Convertible bonds provide the capacity for the owner of the bond to convert into equity at a pre-set rate (the pre-set rate is struck higher than the current equity trading price). For the issuer of convertible bonds, these bonds have the benefit of allowing them to raise debt at favorable terms and potentially get rid of future interest payments (if their stock appreciates above the pre-set conversion rate and the bonds convert into equity).
For the investor, buying these bonds provides a position higher in the capital structure than equity if the company ends up defaulting (so they could have some level of recovery in bankruptcy), but if the company does well it allows for the investor to have higher upside (compared to just getting the pre-set coupon payments of the bond) via converting to equity.
Goldman Sachs is likely the most coveted sales and trading summer analyst internship to get and as a result the standards you need to meet are very high.
If you're looking for 300+ other interview questions along with an S&T Overview and Desk-specific guides, be sure to check out Sales and Trading Interviews. I also wrote up a very detailed introduction to sales and trading in another post.
These guides were created because I recognized how non-existent S&T interview resources were at present and how many smart candidates simply were unable to prepare for interviews as a result.
The aim was not to merely provide sales and trading interview questions that you need to memorize. Rather the aim was to provide you the contextual understanding you need for how the trading floor operates, what you need to know about the major desks in sales and trading, and then of course provide hundreds of the most common sales and trading interview questions.
Most of the interview answers go on for multiple paragraphs - or even whole pages - in order to try to build your understanding. Be sure to check it out if you're currently preparing for a summer analyst or even a full-time role at Goldman Sachs or another leading bank.