Interview Question: Why Sales and Trading Not Investment Banking?

Many will end up needing to choose - normally during their junior year of college - whether to pursue sales and trading (S&T) or investment banking.

As a result, the internet is full of forum threads where people agonizingly go through what they believe are the pros and cons of each.

Some will contend that sales and trading is dying, so investment banking is superior. Some will contend that investment banking involves working a soul-crushing 90-100 hours a week, so sales and trading is superior.  

The reality is that you shouldn't take the advice of anyone else, but rather seek to fully understand what it is you're getting yourself into when you pursue either S&T or IB. 

Obviously, I'm a bit biased, however the following are some things to keep in mind and think through. I think when sales and trading is weighed against IB, S&T generally wins. However, not everyone will have the same personality-type, interests, and motivations as I do.

Consideration #1: Being Involved in the Market

Many will state in an investment banking interview that part of their interest in investment banking stems from loving the markets (by which they mean the equity markets normally).

The reality is when you're grinding out Excel models and PowerPoints all day for some M&A deal you aren't exactly following the markets. In fact, you're likely entirely disconnected from them because there's no reason for you as an analyst or associate to be overly concerned with them. It's not relevant to the job and you have lots on your plate with the narrow deals you're involved with. 

Of course, you can exit to a private equity fund - or go the long / short hedge fund route - after banking, but the notion that investment banking will give you some kind of bird's-eye-view of the markets isn't the case in practice. 

In sales and trading, on the other hand, you are the market to a certain extent. As a liquidity provider it's you are setting markets in securities.

With that being said, the markets we're dealing with here are not single-name equities (unless you're one of the few people on the cash equities desk). Further, we aren't really pitching investments. Sell-side trading is about serving clients, providing liquidity, and managing the risk that results. 

Perhaps said another way, in sales and trading you get to be involved in setting markets in a variety of distinct asset classes, but you aren't betting on the markets (at least directly).

Consideration #2: Hours and Compensation

At a bulge bracket investment bank you are going to have a slight haircut during your early years compared to investment banking. 

However, if you break down your compensation by pay-per-hour - which is obviously not how you're actually paid, but is a useful shorthand - those in sales and trading make significantly more.

In investment banking you'll be looking at hours between 70-80 on good weeks and likely 80-90 on bad weeks. In sales and trading almost every desk will be working market hours with some extra hours around the margins. Realistically, even as a junior person on the floor, you'll be looking at 50-60 hours per week. 

For more intensive desks that are disconnected from the markets perhaps on a bad week you could get to seventy hours a week. But that would be an outlier. 

As you get more senior investment bankers do generally make more money unless you're comparing them to the head of a certain desk on the trading floor who is doing well that year. However, that needs to be weighed against the reality of the kind of hours you've put in over decades of work to reach that point. 

There's no right or wrong answer to which compensation and hours profile is better. It depends on what you value, how important free time is, and what skillset you're looking to build. 

Consideration #3: A Broad vs. Narrow Skill Set

Many get into investment banking with dreams of reaching the MD level, or moving to private equity and getting significant carry. However, then they butt up against the reality of the job, which takes a toll on you.

Due to the broad, widely sought after skillset developed in M&A banking you can always leave high finance to a corporate finance gig that pays less, but provides much better hours. Further, you can move to a smaller city than New York, London, or Hong Kong where the cost of living is significantly lower.

In sales and trading you will be specializing in a particular asset class - like municipal bonds, rates, high yield credit, etc. - that will be highly sought after by a much more narrow range of companies (likely still within the realm of high finance).

That means that unless you plan to change careers altogether, you will be wedded to the product you begin with for your entire career. It also means you will likely have few (if any) opportunities to move to a small city and take a more relaxed job.

That's not to say that there aren't "corporate America" style exit opportunities that are possible coming out of sales and trading. It's just that they are rarer to come by and a much less traditional path to go down.

Consideration #4: The Social Aspect

One of the oddities about investment banking is that at the junior level you're in a very analytical role that requires nearly no level of "sales". During the work from home period of 2020, it's become very apparent that as long as an analyst or associate can churn out the work it's fine to not hear from them otherwise, which has really hit the morale of M&A groups.

However, as you progress up through investment banking you are increasingly in a sales role with the role of a managing director being primarily to the sell a client on doing an IPO, capital raise, or M&A transaction.

In sales and trading, even if you are in a trading role, you are always communicating with people from the beginning of your career. Whether that be those on your desk, clients, traders outside the firm, or others within the bank (like research analysts).

If you value being in a more social atmosphere - always needing to talk to someone about markets - then there are few places better to be than in sales and trading.

Consideration #5: Developing Expertise

The double-edged sword of investment banking is that it develops a broad skillset, but it could take many years to specialize down and truly feel like an expert in any particular area (like in TMT or FIG).

In sales and trading because you are placed in a niche area of finance right away - such as equity derivatives trading or MBS trading - you quickly begin to feel like an expert.

Of course, expertise takes time to develop in any pursuit, but because of how narrowly focused in on a given product you are it does come quite quickly in sales and trading. 

Wrapping Up

As mentioned at the outset, there's no right or wrong answer for whether or not sales and trading is better than investment banking.

If asked in an interview why you prefer sales and trading you should reflect on the five considerations outlined above. 

It would be highly impressive for a young person to say that the reason why sales and trading is because they want to develop a narrow range of expertise, instead of a broad skillset like in M&A, for example. 

One of the best ways to stand out in any interview is to show that you have thought seriously about the pros and cons, weighed them in your mind, and ended up coming to the conclusion that the job you're applying to is right for you.

Of course, you can never truly know until you begin, but that's the risk we all take when entering into a certain career path. If you're still intrigued by sales and trading, i've put together a long list of sales and trading interview questions to give you an idea of the diversity of questions you can expect.

Alternatively, the S&T interviews course has over 300+ questions along with desk-specific guides to help make sure you not only land a role within S&T, but succeed in it. 

1 comment

  • Thanks for such an amazing outside the box review. Very good summary of things to keep in mind that are not widely covered by finance content providers and blogs.

    Gali Aitkuzhinov

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